Advice on Refinancing to Move Home

Timing – The Gap, the Overlap and Simultaneous Settlement

If you’re selling your current home and buying a new one there are some timing issues you need to think about in the change-over.   Do you settle the two properties on the same day or do you sell first and buyer later, or buy first and sell later?  Here are some issues you need to consider.

Simultaneous Settlement

If you are settling the sale of your current home on the same day as the settling the purchase of the new home then making sure everything is ready for the day is important.   Simultaneous settlement is likely to involve at least three or more banks (your buyers, yours, and the person selling to you) and potentially six or more lawyers (one for each bank and one for each buyer/seller).

Most banks arrange settlements through a call centre so you are just one of many files they handle.  We often find that we have to make many calls to everyone to make sure everything everyone is ready on time.

It only takes one of the parties involved to not be ready and the whole thing gets delayed.  This can lead to late settlement penalty costs.

The Gap

If the settlement of the sale of your current home is before the settlement of the new home then you’ll have a gap of time between the two.

The obvious problem with this is that you’ll need somewhere to live and store your belongings in the meantime but also you’ll need to decide how to arrange your loan.

If you want to keep the same loan for your new home you’ll need to see if your bank will hold onto you loan and allow you to transfer it to the new property.  This is called substitution of the security property.

If you are doing this substitution then you’ll also need to see if your bank requires you to provide a full loan application to check you current financial position or whether they will swap the properties without it.

The Overlap

The main concern with buying your new home before you sell the old one is that you’ll own two houses at once and therefore have two loans at once.  This works if you have plenty of income to afford the two loans but most people don’t.

Many people’s first thought is to obtain bridging finance however these types of loans can be expensive.

Some banks will allow you to temporarily have the higher loan on both properties until you sell the old home.  You’ll need to look at the details of under what conditions the bank will allow this.  For example will they want an unconditional contract of sale on the old home before they will allow this.

With this temporarily higher loan you may have higher repayments but there is also the potential to arrange repayments to be the long term amount and have the extra repayment taken from the settlement of the old home.

Same or Different Loan

If you keep the same loan for the new home by doing a security property substitution (see above) you may have some costs associated with the valuation of the new property and legal documentation of the mortgage.

If your current loan needs to be increased you’ll need to do a new loan application for the bank to assess if you can afford the higher amount.

If your new home is valued less than you current home the bank may require you to reduce the loan size so take this into account when you are working out how much of your own funds will be required at settlement of your new home.

You might want to change to another loan which is cheaper or offers better conditions.  Often banks and other lenders provide attractive offers to new customers to change lenders.  You’ll need to find out about the costs of exiting your current loan and establishing a new loan and compare this to the savings you’ll make on the new loan.

Fixed Rates Warning

If your current loan is partially or fully fixed then changing to another loan or reducing your loan size before the end of the fixed period could result in payment of break fees.  These fees can be substantial so you need to investigate this before committing to any changes.