Whether it’s a family home or an investment, there’s a lot to consider when committing to a new property. With interest rates plummeting and the property market booming, you may be tempted to invest or upgrade. Whatever your intention, there’s a lot to think about when it comes to your mortgage.
There are a few ways to approach your mortgage – we’ve outlined options here so you can choose the right solution for you.
Take out a second mortgage – don’t sell your existing house
Property investment is the primary source of wealth for many Kiwis. With low rates and reliable capital gains, now’s a good time to invest. If you have decent equity in your current home and want to buy another, the numbers will often allow you to keep both and rent one out. You’ll be a property investor and make fantastic capital gains, as long as you can cover the mortgage repayments on both properties.
With this approach, you could consider going interest-only for one of your mortgages to keep cash moving, borrow extra to improve the property and attract better rents or buy as a business to take advantage of tax benefits.
Take the risk and avoid bridging finance – sell first then buy
In today’s bustling housing market, it’s both exciting and daunting to sell your home first, then look for another. If you can stomach the risk and emotional upheaval, this option is the most financially sensible. You’ll know exactly how much you can put into your new home and therefore what you should be looking for. That’s because while the bank will pre-approve you for your new mortgage, they’ll be guessing how much you’ll get for your house. Even a difference of $5-10k can completely change how much you could borrow and the kind of house you can afford. You also won’t have to pay bridging finance to cover the cost of two properties – which will save you thousands of dollars in unnecessary debt.
But selling first does involve some risk. You may find yourself with nowhere to live in between selling your home and buying a new one and in this market that period could go on for months, creating huge emotional stress. You’ll also need to weigh the costs of temporary accommodation and consider where you’ll live during the in-between period. The pressure of having to find somewhere to live may also prompt you to make panicked decisions – paying more than you should or settling on a less-than-ideal property.
Take your time and pay bridging finance – buy first, then sell
Securing your new home before you sell your old one has plenty of upsides. It delivers more certainty around your plans – you’ll know exactly where you’re going once you’ve sold your current home, meaning less emotional stress. It also makes the process less rushed – you can take your time to find the right home, and even stay in your existing property while you do up the new one.
If you’re lucky, you may strike a miracle and line up the settlement dates of your existing and new property. That means you move straight into your new home without facing bridging finance, which, because you’re paying two mortgages for a time, can be cripplingly expensive.
Buying first also means you may not know exactly what you’ll have to spend – you may find you could have looked for a higher-priced property. Or, perhaps more difficult, you may not have realised as much value as you expected, which will mean the deposit on your new home will be short.
Let’s untangle the complexity
Buying a new house is an exciting time. No matter what approach you decide on, there’s a lot to be considered – do you sell first, so you know what you have to spend, but risk being homeless? Do you get bridging finance so you can buy your new house before you’ve sold, or do you just sell neither? Working with an experienced broker is the best place to start – we’re here to help you understand what approach will best suit you and your family.
Get in touch with Global Finance to start your mortgage application today.