How much do I have to spend on my next property?

Selling your home and upsizing

If you are selling your current home to buy a larger property, your available funds will be determined by the net proceeds from the sale. This approach allows for a straightforward transition as you settle your existing loan and use the remaining funds as a deposit for your new home.

How it works:

1. You list and sell your current property for $600,000.
2. After agent fees of $12,000, you clear your existing loan of $250,000, leaving you with $338,000 in net proceeds.
3. You use this amount as a deposit for your new home, reducing the loan amount needed.
4. You purchase a new property valued at $850,000, with associated stamp duty and fees of $50,000.
5. After applying your $338,000 deposit, you require a loan of $562,000, with estimated repayments of $3,369 per month over 30 years at a 6% interest rate.

Pros:

• Lower loan amount due to the large deposit
• Simpler financial process with no overlap in home ownership
• Avoids additional interest costs from temporary loans

Cons:

• Requires selling your current home before purchasing the new one
• Potential for a gap between selling and buying, requiring temporary accommodation

‍

Bridging loan option

A bridging loan allows you to buy your new home before selling your existing one. This can be useful if you find a property you love but haven’t yet sold your current home. However, it comes with additional costs.

How it works:

1. You purchase the new property before selling your current home.
2. A bridging loan temporarily covers the full cost of the new property and any existing loans.
3. During the bridging period, you must cover repayments on both your existing mortgage and the bridging loan.
4. Once your old home is sold, the proceeds are used to pay down the bridging loan.
5. After the sale, your final loan amount is $562,000, with repayments of $3,369 per month over 30 years at 6%.

Financial breakdown:

• Bridging period costs:
  
  • Purchase price: $850,000
  • Stamp duty and fees: $50,000
  • Total purchase cost: $900,000
  • Total loan required: $1,150,000 (includes existing and new loans)
  • Bridging loan: $588,000
  • Interest on bridging loan: $47,040 (over 12 months at 8%)

Pros:

• Allows you to secure a new home before selling
• Avoids the need for temporary housing between transactions 
• Can be useful in a competitive market

Cons:

• Higher costs due to additional interest on the bridging loan
• Risk if your existing home does not sell within the expected timeframe
• Requires the financial ability to manage multiple loans temporarily

‍

Keeping your existing property as an investment

If you wish to keep your current home and rent it out while purchasing a new property, your borrowing needs will be higher, but rental income can help offset some costs.

How it works:

1. Instead of selling, you keep your existing home, turning it into an investment property.
2. You take out a separate loan to purchase your new home, meaning you now hold two mortgages.
3. Your existing property generates rental income, which can contribute to repayments.
4. You manage two sets of repayments, one on the existing home and one on the new property.

Financial breakdown:

• Existing property:
  
  • Value: $600,000
  • Existing loan: $250,000
  • Existing repayments: $1,611 per month (25 years at 6%)
  • Rent received: $2,250 per month
• New property:
  
  • Purchase price: $850,000
  • Stamp duty and fees: $50,000
  • Total cost: $900,000
  • Loan required: $900,000
  • New repayments: $5,396 per month (30 years at 6%)

Pros:

• Builds long-term wealth by holding onto an appreciating asset
• Rental income helps offset loan repayments
• Potential tax benefits from property investment

Cons:

• Higher debt exposure with two large loans
• Requires strong cash flow to manage multiple repayments
• Property may not always be tenanted, leading to potential financial strain

‍

Each scenario has its advantages and challenges, depending on your financial situation and goals. Before making a decision, consult with a mortgage broker or financial advisor to assess your borrowing capacity and ensure you make the best choice for your circumstances.