Making the most of your next move
Unlike first home buyers, those purchasing their next property have a significant advantage: equity. The difference between what your current home is worth and what you owe on your mortgage is a powerful financial tool that can be used to fund your next purchase, reduce your new loan size, or even build a property portfolio.
At Loan Hive, we help you understand exactly how much equity you have, how to access it, and how to structure your next loan to put yourself in the best possible financial position. Whether you're upsizing to accommodate a growing family, downsizing as the kids leave home, or relocating for work - we have the expertise to guide you through the process.
Understanding and accessing your equity
Your usable equity is generally calculated as 80% of your property's current value, minus the outstanding balance on your mortgage. For example, if your home is worth $800,000 and you owe $400,000, your usable equity is up to $240,000 (80% of $800,000 = $640,000, minus the $400,000 owing).
This equity can be used as a deposit for your next property, meaning you may not need to save additional cash savings. There are several ways to access your equity:
- Refinancing your existing loan: Increase your loan limit to release equity as cash, which can then be used as a deposit on your new property.
- Using the equity as security: Some lenders allow you to use your current property as additional security on the new purchase, reducing or eliminating the need for a cash deposit.
- Selling and buying simultaneously: Applying the net proceeds from your sale directly to the purchase of your new home at settlement.
Should you sell first or buy first?
This is one of the most common questions we get from clients buying their next home, and the answer depends on your individual circumstances, risk tolerance, and the current market conditions.
Selling first
Selling your existing property before buying gives you certainty around your budget. You'll know exactly how much you have to work with, and you won't be carrying two mortgages simultaneously. The downside is that you may need to rent in the interim, or negotiate a longer settlement period on your sale to give yourself time to find and purchase your next home.
Buying first
Buying before selling means you won't miss out on your ideal property, and you'll avoid the stress of a rental gap. However, you're exposed to the risk of holding two properties simultaneously if your sale takes longer than expected - and two mortgages can put significant pressure on your finances. This approach generally requires strong equity in your existing home and a good understanding of the local market.
Bridging finance
Bridging finance is a short-term loan designed specifically for the period between buying your next home and selling your existing one. It bridges the financial gap, allowing you to complete the purchase without waiting for your sale to settle.
Here's how it typically works: the lender combines both your existing mortgage and the new loan into one "peak debt" facility. Once your existing property sells, the proceeds pay down the peak debt, and you're left with your ongoing loan on the new property. Key points to understand include:
- Bridging loans are usually available for terms of 6 to 12 months
- During the bridging period, you may make interest-only repayments or have interest capitalised
- Lenders will want to assess the value and marketability of your existing property
- Bridging finance typically carries a slightly higher interest rate than standard home loans
- It's important to have a realistic timeline and exit strategy before proceeding
Not all lenders offer bridging finance, and the assessment criteria can be complex. Our brokers can identify the right lender and structure to suit your situation.
Simultaneous settlement
A simultaneous settlement - where you sell and buy on the same day - can be an elegant solution but requires careful coordination between all parties. Your conveyancer plays a critical role in ensuring funds flow correctly, and timing is everything. We'll work closely with your legal team to ensure your loan is structured to support this approach.
Downsizing considerations
If you're downsizing, your new property may cost significantly less than your current home, meaning you might be able to pay cash or substantially reduce your mortgage. However, there are still important financial planning considerations, including stamp duty on the new purchase, the potential impact on your superannuation strategy, and whether a small mortgage might actually be advantageous for cash flow purposes. We take a holistic approach and work alongside your financial adviser where appropriate.