Home loan Tips with Money Matchmaker®
Managing Your Home Loan When Selling and Buying
Written by
Shaun McGowanBuying your first home is an exciting - and often stressful - experience. Buying your second home will be equally exciting but also comes with new challenges; one of the most significant decisions is what to do with your existing mortgage.
Transferring, increasing, or refinancing your home loan can either be a simple, straightforward process, or a stressful and potentially costly one.
Here are some tips to help you streamline the process and avoid any unnecessary stress.
Refinancing or transferring your existing home loan
Firstly, if you’re selling your existing property and buying a new one, you’ll generally have two options with your home loan:
- Transfer your home loan
- Refinance your home loan
Which option you choose will depend on the features and affordability of your existing home loan, and lender criteria for loan portability.
Transferring your home loan to another property
Loan portability is a feature of some home loans that allows you to transfer your existing loan to another property without refinancing.
There are a few potential benefits or reasons to transfer your loan:
- You keep the interest rate of your existing loan
- You keep the structure and length of your existing home loan
- You can avoid the fees of refinancing a new home loan
If your existing home loan and lender allows for loan portability, you’ll need to review the details of your current agreement to ensure the new property meets the lender criteria for transferring your home loan.
Refinancing your home loan
Your other option is to refinance your home loan, which is the process of repaying your existing loan and applying for a new home loan, either with your existing lender or a new lender.
Refinancing can allow you to access higher home loan amounts, negotiate better rates, or reduce regular loan repayments in the short term, but there are some considerations:
- You may have to pay fees to close your existing home loan
- You may have to pay fees when applying with a new lender
- Your new home loan may take longer to repay
- You’ll need at least 20% equity in your home to avoid LMI fees.
To get the most out of refinancing, you’ll want to speak to your current lender and see if they can offer you a better deal.
If you’ve made consistent repayments and have at least 20% equity in the property (i.e. the value of the home is at least 20% higher than the remaining loan amount) you’ll be in a better position to negotiate a lower rate and a better deal.
If you decide to refinance with a new lender, you’ll want to take in all the considerations of applying for a new home loan, while keeping in mind the potential fees involved:
- Exit Fee - Charged for repaying your loan early
- Application Fee - Charged when applying with a new lender
- Establishment Fee - Charged upon approval of the new loan
- Processing Fee - Charged when refinancing with the same lender
- Stamp Duty - A variable cost included with the transfer of high-value assets such as houses, land, and vehicles.
As with negotiating your interest rate, you’ll be in the best position to negotiate reducing or to remove fees if you have a higher percentage of equity in your existing property.
Final considerations
Whether you choose to refinance or transfer your home loan, the most important consideration is that you can meet the repayments on your mortgage and that it meets your needs for a home loan.
- Do you plan to refinance or borrow available equity in the future?
- Will you plan to access finance to renovate the home?
- Will the term of your new home loan be longer than the remaining term of your existing loan?
- If so, how will this affect the total amount of interest you pay?
Regardless of the option you choose, it’s important to follow the standard process of purchasing a home to ensure you are protected: purchasing a new property without first ensuring the sale of your existing property could leave you with two mortgages to repay and quickly become unmanageable.
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About the Author
Shaun
McGowan
Shaun McGowan
Shaun is the founder of Money.com.au and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded CarLoans.com.au and Lend.
