Navigating Your Mortgage During the Home Buying and Selling Process

4 Unexpected Things You Can Prevent Before Showing Home - 303-955-4220

Moving between houses is a significant challenge, and it becomes even more complex when you need to adjust your mortgage simultaneously. Managing mortgage transitions carefully is crucial for homeowners to minimize costs. Understanding concepts such as break costs and bridging finance can simplify changing loans.

Switching Houses

In theory, transitioning between two homes should be straightforward: find a new property you like, and sell your old one at a profit. However, the reality is far more complex. Selling a property for a high price often involves perfect timing. Homeowners must decide whether to sell their current home before buying a new one. The safest route is usually to sell before buying, which allows homeowners to know exactly how much they can spend on a new property, reducing financial stress and simplifying the search for new financing options.

If homeowners choose to sell their home first, they must find temporary accommodation while searching for a new house. This situation can be frustrating and costly, as it involves paying for moving twice and possibly storing belongings. Additionally, frequent utility connections and disconnections can increase expenses. Furthermore, homeowners might lose out on potential property value increases if home prices are rising.

The Alternative

An alternative approach is to buy a new property before selling the old one. This method simplifies the moving process but introduces financial risks. If the old home sells for less than expected or takes a long time to sell, significant financial losses can occur. Buying first also means the homeowner won’t know the exact mortgage size they can afford, potentially leading to double mortgage payments and increased debt. Homeowners will also need to manage upfront deposit costs without relying on the sale proceeds from their old home.

Deposit Bonds

A deposit bond acts as a guarantee that the buyer will pay their deposit at settlement. This promise to the lender covers initial costs and typically costs about one percent of the deposit, serving as an effective short-term financing solution.

Bridging Finance

Bridging finance helps cover the interim between buying a new home and selling an old one. It generally covers the cost of the new purchase and comes with higher repayment plans. If the sale of the old property doesn’t cover the new purchase price, the homeowner incurs “end debt.” Despite potentially higher costs, bridging finance usually has lower fees than other options due to its short-term nature. Homeowners changing their primary residence to an investment property might consider “negative gearing,” where the costs of maintaining the property exceed the income it generates, yet tax breaks and concessions make it profitable. Negative gearing calculators, like those available on Smartline, can help assess the financial impacts.

Switching Loans

Homeowners looking to switch properties can either refinance with their current lender or secure a new mortgage with another bank, provided the lender allows the loan to transfer to a new property. Alternatively, homeowners can settle the remainder of their existing loan if they wish to change financial institutions.

Break Costs

Break costs represent the penalties for exiting a loan early. When switching loans or lenders, these costs must be paid. They compensate the lender for the financial risks and the commitment to holding the original loan.

Intelligent planning and financial preparation are essential for homeowners considering a move and loan change, helping reduce overall costs and streamline the transition.

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