Broker - Smartfinn Advisors

Loan Essentials

August 2021

Here’s a refresher on some of the finance options available when you’re purchasing your next house and a few other key considerations.

The straightforward approach: Sell your current house to pay for the second

If you’re not planning to keep your property as an investment, one way to keep the transition as straightforward as possible is to sell your existing dwelling before buying the next.

Pros	Cons
Know how much capital you have for your new purchase More time to shop around with less stress Improves your borrowing power and how you appear to lenders, perhaps netting you a more competitive interest rate	May need to make interim living arrangements, renting or living with family Unpredictable house prices could mean an increase at any time, especially in more affordable regional areas, leaving you paying more for less

Plan B: Consider a bridging loan

A bridging loan gives you access to funds to buy your next property before you’ve sold your current one, which isn’t always an option.

The lender adds the value of your new home to your existing mortgage, then subtracts the likely sale price of your existing property. You’ll need a property valuation for each property.

Payment scheme

Typically, you pay interest-only on the entire loan amount until the first property has sold and the principal is repaid in full. Bridging loans are sometimes structured so you only make interest repayments on the loan until settlement, capitalising the interest due on the rest of the loan. Either way, once you have sold your existing property, the loan reverts to an ordinary home loan.

Should I buy first and then sell?

Pros

Cons

If you can afford to manage two home loans at the same time, or if the bridging loan is an option, then this may be less disruptive and give you more time and flexibility to find the ideal place
If building a new house, then this option allows you to stay in your existing property until your new house is ready
Save money on rent and moving costs by knowing exactly where you’re going when you’re going to move.

Must service and manage two loans at the same time, reducing borrowing capacity
The longer it takes to sell your existing house, the more interest you’ll pay
You need at least 20% of the total value of both properties (either in cash or equity) to qualify for a bridging loan

Build your property portfolio: Consider investing

Do you really need to sell your existing property? With Australian-dwelling values continuing to see record growth, now might be the time to consider growing your wealth through investing.

Should I invest?

Pros	Cons
By holding on to your first property and renting it out, you may be able to generate a reliable secondary income You may be able to continue to leverage the investment meaning you can purchase more with less It is a tangible asset you can see and touch, which can create comfort seeing your stable investment The interest on an investment home loan may be tax deductible	You may have period where you do not have rental income which means covers cost for the property Managing tenants isn’t always easy There could be ongoing costs with maintenance

Whatever your circumstances or situation, we’d be happy to help you set up the most suitable plan to achieve your financial and property-buying goals. Get in touch with us today!

Broker Information

Smartfinn Advisors Pty Ltd ATF Smartfinn Trust ABN | ACN

Australian Credit Licence 543697

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Three finance strategies for purchasing your next property