Home loan finance options for next home buyers

What you’ll learn

• How to move your Westpac home loan to your new place
• Buy yourself time with a Westpac bridging loan
• How much you could borrow for your next home loan
• Choosing the right type of loan for your next home
• Loan repayment options for your financial situation

Move your existing loan to your new place

If you have a home loan with us, you could choose to bring it with you, or ‘port’ your loan. Loan portability means transferring the mortgage on the home you sell, to your next home. Choosing this option saves you time, and avoids some of the hassles of new home ownership.

How does loan portability work?

Your current property is held as security on your existing mortgage. When you sell this and buy again, the loan security will be transferred to your new home. Your current home loan balance, interest rates and other attached features – such as a linked offset account, will also move with you. All you need to do is continue with your regular home loan repayments.

The benefits of home loan porting

• Keeping your existing home loan means fewer hassles – all interest rates, your home loan repayment preferences and set features like offset accounts move with you
• You can avoid break costs on fixed-rate home loans by keeping your existing limit and balance when substituting your security (i.e. your security is now your new home).
• There’s less prep and conveyancing paperwork so it’s generally faster than applying for a new loan
• You can avoid the upfront costs associated with new loan applications

Considering porting your loan? Read more about the features and benefits of home loan portability, and how it could work for you.

Buy more time with a bridging home loan

A bridging loan lets you finance your next home purchase, while waiting for your current house to sell. This is a short-term loan that’s additional to your existing home loan. A bridging loan is available for up to 12 months. It means you will have two loans during the bridging period and will pay interest on both. Let’s break down the two basic types of bridging loan: with end debt and without end debt.

Option 1: No end debt

This situation occurs when the sale proceeds of the existing property will be enough to cover the entire amount you need to borrow with a bridging loan.
 

For example, you will have no ‘end debt’ if you’re downsizing and the sale proceeds of your existing property will be enough to cover the entire bridging loan amount.
 

With this loan type, you repay the bridging loan in full along with any interest and fees when your current property sells. This means you will not have any ongoing bridging loan or end debt.

Option 2: With end debt

This happens when you need to borrow additional funds to purchase your new property with a loan that will continue after you sell your current home.
 

You most commonly have an end debt situation if you’re upgrading to a more expensive property or in the case of separation or divorce where equity in the current property is being split.
 

In this scenario, a bridging loan actually means that there will be two loans setup:

• a bridging loan and:
• an end debt loan.
   

The end debt loan is set up as a standard owner/occupier home loan. You can choose from any of our existing variable or fixed rate loans for this loan type.
 

When the existing property sells, the bridging loan is completely paid out from the proceeds. Any remaining funds may be used to partially pay down the end debt loan. The end debt loan then remains open – you continue to make repayments on it until it’s paid down. This is effectively your ‘new’ home loan.

Is a bridging loan right for you?

 The upsides:

• You can act quickly to buy your next home even if you haven’t sold yet.
• There’s no need to rush to find a rental while you wait, or a requirement to move twice.
• You can use additional cashflow to make payments anytime on the bridging loan during the bridging period, to help reduce your interest costs.
• You can add costs such as legal fees and stamp duty to your bridging loan to help with immediate expenses. (If the property value and equity in your current home are enough).
   

 Possible downsides:

• You may need very strong borrowing capacity to qualify for a bridging loan. Your application will be assessed on your peak debt, which is the combined amount on your old loan and your bridging loan, less any contribution or deposit you can make.
• You will also need to have a loan to value ratio (LVR) of 70% or less, which means a deposit of 30% or more from you to make the bridging loan to work.
• If you don’t make mortgage repayments on the bridging loan during the bridging period, you’ll end up paying interest on interest
• There’s no redraw facility. If you choose to make extra payments during the bridging loan term, you won’t be able to access those funds later
• It’s short term. There are penalties for going over 12 months. Understand the real estate market to learn whether your house could sell quickly. The longer the sale takes, the bigger your interest payments
• You might find that you need to change your current household budget significantly to accommodate repayments on both loans. Your lender will talk through this with you in detail when you apply.
• We may ask you for valuations for each of the properties, this means additional costs.
   

Read more about the features and benefits of a bridging loan, and how it could work for you.

How much can I borrow?

With a bridging loan, you may need at least 30% of the purchase price as useable equity and your borrowing is restricted to no more than 70% of the combined property values. You’ll also need to find the 5-10% deposit, and if you haven’t sold your property, you’ll need this as savings.

Other loan types may allow you to borrow up to 95%. It is important to note that for loan products where you borrow over 80% of the combined property values, you will likely need to pay Lender's Mortgage Insurance.
 

You can use our borrowing power calculator to see what an LVR of 70% could mean for your repayments in a standard home loan. Our home equity calculator will give you a sense of the useable equity in your current home.

Choosing the right loan for your next home

When buying your next house, take the time to explore your loan options. Circumstances change. You may have a different cash flow or different financial goals in future than you do currently, so take time to consider how these may change and plan accordingly. The first choice might be deciding between a variable rate home loan, fixed rate home loan or you might want to split your loan between fixed and variable.

Talk to your lender or mortgage broker about what's best for you and your eligibility for different sorts of home loans. As a rule of thumb, loans with more flexibility or features may have a higher interest rate or incur additional fees.

What home loan suits you best?

Variable home loan

Gives you greater flexibility

You can:

• Make extra repayments when you have the cash to bring your loan down faster
• Link your loan to an offset account to help reduce interest
• Redraw any additional payments if you need it for something else
  
  

Fixed home loan

Provides certainty in repayment amounts over time

You can:

• Lock in the same rate and repayments for up to five years
• Your home loan rate could move with you if you sell your property and buy a new one
• Make up to $30,000 in extra repayments with no fees or break costs
   

Split your home loan

Gives you the best advantages of fixed and variable loans

You can:

• Designate part of your home loan to a variable home loan to easily make additional repayments and reduce your loan faster
• Fix a portion of your home loan to have certainty of repayments for up to five years
• Link your variable loan to an offset account to reduce your interest
   

Read more about the features of different types of home loans and what may work best for you.

Home loan repayment options

There are two options for home loan repayments. Typically, you will make both principal and interest repayments (this means paying the principal balance you borrowed and the interest accrued). You could also choose to pay only the interest for a set period of time.
 

Here’s a quick summary of the different repayments types:
 

Principal and interest repayments

• By repaying what you borrowed from your very first payment, you will pay off your home loan faster
• You can reduce the interest you pay by linking an offset account to your loan
   

Interest only

• The monthly repayments will be lower for a set time as you’re only paying the interest accrued on your loan
• The amount you owe won’t reduce during the interest only period as you’re not paying back any of the principal
• Your loan will convert to a higher principal and interest repayments after the interest only period as you now have less time to pay back the money you borrowed
   

If you want more detail about principal and interest and interest only repayments, read more about different repayment types.
 

You can also use our calculator to work out how much your home loan repayments could be.

To sum up

• Porting your existing Westpac loan could make your next house move easier
• Bridging loans could give you more time to sell and buy again
• Make sure you know what you can borrow before you buy
• Choose the best loan for your circumstances
• Explore repayment options to pay off your loan faster.
   

Next steps

Choosing the right kind of home loan for your next home is an important decision. It’s worth doing your research and getting independent financial advice.
 

If you have any questions about loan options, or any of our home loan products, request a call back and talk to a Westpac lender about your options.