Time for a new home? As life goes on, you may want to find a home more suited to your current needs. And with an existing mortgage, you may be considering your options; like, what happens with your mortgage? Might you buy or sell first?
Here are some key things to know as you plan your next steps.
One of the first things you may be considering is whether to buy or sell your home first. Both options have their pros and cons, and what’s more appropriate for you depends on your financial situation and goals.
Buy before you sell – A key advantage of buying before selling is that you can take your time to find your next home, something appropriate for your lifestyle and needs, without the settlement date drawing ever closer.
However, there’s a risk component to consider. To be able to buy your new home, you’ll need the deposit money, and that may not be easy if you can’t first free up the equity tied up in your current home.
Plus, if your place doesn’t sell fast, you’ll be paying double for a while – for home insurance, rates, and utility bills, let alone having two mortgages to repay.
Sell before you buy –If you’d like to know exactly what you can afford to buy next, then selling first may be a more appropriate option.
However, you need to factor in the cost of renting another place while yours is being listed, and in this tight rental market, finding short-term accommodation may not be easy. Also, you’ll have to add in the cost of moving your furniture twice and paying for storage in the meantime.
And then there’s the settlement date: the day of the final balance payment of the purchase. Conditional offers are relatively common, and you can ask to make the contract conditional to the sale of your property. In this case, if your home doesn’t sell by the settlement date, the purchase of your next home will automatically fall through. It’s a way to protect your financial circumstances.
Keep in mind that failing to meet the provisions can have serious consequences, so make sure to contact your solicitor before and after signing on the dotted line.
In any case, once the vendor has accepted your offer, the settlement starts looming on the horizon, and this can add extra pressure to the whole process. Ideally, you may want to negotiate a long settlement period, but especially in a hot property market, this is not always possible.
When it comes to your mortgage, here are the key options to know for a smoother transition:
Take out a new mortgage – One of the most common steps is paying off your existing mortgage in full by making a lump sum payment, and then taking out a new one. This works quite well if you’re selling your house first, of course. But keep in mind that if you’re on a fixed rate, early repayment fees (or break fees) may apply. Plus, there may be other key things to consider here – get in touch, we can help you learn more about your options.
Moving your mortgage with you – Like to keep the interest rate on your existing mortgage? Transferring your existing mortgage to your next home allows you to sell your house and buy the new one while keeping your existing mortgage, and with it the terms and conditions you currently have. Also, it may save you some time and money on paperwork and break fees.
Bridging finance – If you haven’t yet sold your current home and need the funds to buy your next property, you could apply for bridging finance, usually with non-bank lenders. It’s a short-term loan which can allow you some time to sell your current home while being able to buy the new one.While it’s a good ‘bridge’ between one situation to the next, it’s worth keeping your timing and affordability top of mind: it’s an additional loan on top of your existing mortgage, and usually set on the floating rate (or higher), which is higher than the fixed rates.
Get in touch anytime – we are here to help make your move to your next home as smooth as possible for your financial needs and situation.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.