When a property opportunity knocked for two health practitioners.
Profiting from a property offer too good to refuse – even if you’re too busy.
Like most home owners, Bill and Melissa had a long-term plan in mind for their family home, with a 25-year loan in place. But when an unexpected offer landed on their doorstep, a golden opportunity arose and plans changed.
When I first met Bill and Melissa they told me, “Our practice keeps us both very busy and we were very settled – the kids happy in the local secondary school, our eldest working hard on Year 12 studies. If we hadn’t had an offer from someone to buy our home that was too good to refuse, we certainly would not have considered selling our home.”
What they didn’t realise was that selling their current home and buying a new one, especially when it’s unplanned, means there can be a lot of issues to consider about what to do with the mortgage.
Fortunately, their first phone call was to their accountant Steve, who called me in to give some mortgage advice. Here are some of the key issues to consider in this situation.
What do you want to do once you’ve sold?
Taking advantage of the golden opportunity can be financially rewarding but you’ll still have to live somewhere. That means planning a new home purchase and knowing what you want to do about a mortgage. Will you need to borrow more or less for the new home? Is your current loan a good one or is there a better one?
Timing the changeover
If you’re buying a new property how are you going to time the changeover? Will you settle the new purchase before, after, or on the same day as you sell? This will impact on how you arrange your loan changeover. Some banks are more flexible with this than others and getting this to work needs someone experienced to make sure it all happens at the right time. Missing settlement timing can be costly.
Pay out or transfer the loan?
Do you pay out the loan or keep it? A loan can be transferred from one property to another under certain circumstances but it does require a mortgage broker to coordinate the arrangements. There will be valuations needed, new loan documents, and making sure all the arrangements are done on time.
Here are a couple of reasons why you’d keep your existing loan.
If you have a fixed rate mortgage.
If the current mortgage has a fixed rate paying out the loan in the fixed rate period may incur substantial break costs. Keeping the loan and transferring it to another property can avoid these break costs.
If your financial position has changed
If you sell and pay out the loan, you’ll need to start all over again with a new loan on a new home – and a new loan application. However if your financial position is not as strong now as it was when the current loan began, you may not be able to get as large a loan as you had before.
If you transfer the existing loan to the new property, the bank may not need an income reassessment. This is especially important for self-employed people whose income can be up and down.
It’s vital to talk through your plans and current financial position with a mortgage broker before deciding to pay out the loan.
Although not relevant to Bill and Melissa’s situation, many people are presented with an unexpected golden opportunity to move interstate for work. The question then is whether buy interstate and sell or rent the current home? It’s important to run through the numbers with a mortgage broker before making a decision as there are a variety of factors involved. These include taking into account new rental income and your changed work situation with a new income and possibly a new employer.
Taking the golden opportunity even if you’re too busy
It often seems to be the way – opportunity knocks for busy people. But it would be a tragedy for a golden opportunity to pass by, simply due to a client being time-poor.
A mortgage broker who can manage the entire process is incredibly valuable. In any property transaction, making sure everyone is doing their job – the bank, valuer, lawyer and conveyancer – is a lot of work. A good mortgage broker will do the leg work, save you time and reduce stress.
I was pleased to hear Bill say in our post loan review, “Patrick was able to coordinate the whole process. Once we’d found a property, he managed the finance and did all the running around. He also arranged a solicitor who knew the pressures we were under and was able to facilitate that process too,”
“Working with Patrick has been an excellent move for us and we were grateful for the recommendation from our accountant.”