Deciding what to do with your current home
Keeping your current home
If you want to keep your current home, you may be able to use your home equity as the deposit for the second property. This works by using the equity amount as the deposit, in place of handing over a cash deposit, or selling your existing home. For more information about home equity, visit our dedicated blog here.
If your current property becomes an investment property, such as a rental or a holiday home, it is best to speak to a professional for financial advice around this, as there are likely to be tax implications that could be worth considering. If you are buying your second home as an investment, you will likely need an investment loan. You can find more about our investment loans here.
Selling your current home
You may want to sell your current home; or may need to, depending on your independent financial advice sought. Selling your home means you will avoid the cost of having two home loans. If you buy before you sell, there could be pressure to sell your property quickly so you’re not paying two mortgages. You may also need a bridging loan to finance the gap between when you buy a new property, to when you receive funds from selling your existing property. More on this below.
If you sell before you buy, there could also be pressure to find a home quickly, so you have somewhere to live. These factors, along with your finances, as well as the state of the property market at the time, will all likely play a part in your decision.
What is a bridging loan?
A bridging loan is a short-term loan to help you buy your new home, before you’ve sold your old one. If you’re buying your second property before you sell your current property, this could be an option for you. While you are paying for a bridging loan, remember you will still need to continue paying your existing home loan, so will need to take this into consideration.
A bridging loan finances the gap between when you buy a new property, to when you receive funds from selling your existing property. At People’s Choice, we offer a bridging loan which has a loan term of up to 12 months, and offers interest only repayments, meaning you can reduce your repayments.
Find out more about our bridging loan here.
Understanding your finances
Whether you’re keeping your current home or selling, you will need a good understanding of your costs and affordability when looking at buying your second property.
What is your budget, what can you afford to do?
A good place to start is to work out your borrowing power, which is how much money a lender may be able to lend to you. You can use our borrowing power calculator to help you work out how much you may be able to borrow for a home loan.
You can also use our home loan calculator to work out what your new home loan repayments will be. If you’re keeping your existing property, consider whether you will be able to financially cover your existing repayments as well as the new ones, factoring in fluctuating costs like interest rates.
As well as home loan repayments, factor in all the costs you are currently paying for that property, noting you will also need to pay these for the second property. These include utility bills, insurance, council rates, and body corporate fees to name a few, that you may need to pay for, depending how you are going to use your existing property. Consider all the general costs to maintaining a property.
While budgeting, remember all the upfront fees that are involved in buying a property, such as stamp duty, Lenders Mortgage Insurance (LMI) if required and conveyancing costs for example.
Choosing a home loan for your next property
Choosing the right home loan for you when buying your next home is important, as they can vary across the board.
Like when you bought your first home, you will need to look at interest rates and decide whether a fixed, variable, or split loan is right for you, and whether you want to make principal and interest repayments or interest only repayments. For a deep dive into choosing a home loan, visit our dedicated blog.
At People’s Choice, we have a range of home loans you can choose from. Browse them here or speak to your local Home Loan Adviser who will be happy to help you navigate the journey of buying your second home.