What are my financing options when buying a home?

Thinking about your next property? There are a range of financial options and loan features to help make the purchase of your next home easier.

Here we explore the options available to help you navigate the tricky bits of purchasing your new home.

Transferring your existing loan

Just because you are moving home doesn’t mean you need to switch loans. If you are an existing Westpac customer, loan portability allows you to transfer your current loan to your new home. The real benefit of porting your loan is that you avoid the hassle of refinancing and the stress of closing one loan before having to apply for a new one.

How does loan portability work?

When you port your existing loan to your next home, you will be transferring your current loan balance and interest rate – as well as any attached features, such as a linked offset account – to your new home. However the main difference is that, instead of your loan being secured against your old home, it will now be secured against your new one.

What are the benefits of porting your home loan?

The process to port your loan is generally much quicker than applying for a new loan.

• You can avoid potential upfront costs associated with a new loan application.
  
• You have the choice to switch your loan from fixed to variable (or variable to fixed).
• You may have the option to top up your loan with extra funds when you move your loan to a new property.
• You can keep the features and facilities you’ve already set up with your loan, like Online Banking or a linked offset account.

Accessing a bridging loan

What is a bridging loan?

If you’ve found your next home and need more time to sell your old home, a bridging loan could help you finance both properties during this time.

Put simply, a bridging loan is an additional short-term loan (issued for up to 12 months) that you take out on top of your current loan. This means during the bridging period you will have 2 loans, both of which are being charged interest. When you sell your old home you will need to pay down your bridging loan along with any interest and fees that you've accrued.

While bridging loans can be a great option in some circumstances, they are not for everyone. To help you decide if bridging finance is right for you, there are a few things you should bear in mind:

Benefits of a bridging loan can include:

• Buying your dream home - A bridging loan can help when you’ve found ‘the one’, but haven’t started the process of getting your current home ready for sale.
• Avoid renting in the interim - It can be stressful selling your current home, particularly if you need to move into a rental property, pay rent and then move again once you’ve found your new home, especially if you have a family to organise.
• Make payments when you like - If you have the cash flow, you could potentially reduce your interest costs by making payments on the bridging loan during the bridging period.
• Help with upfront costs - You may choose to add upfront costs such as stamp duty and legal fees to your bridging loan if the property value and equity in your current home is enough.

Potential down sides to a bridging loan:

• 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.
• Paying interest on interest - If you don’t make any payments on the bridging loan, the interest is added to the balance - and you’ll end up paying interest on this interest.
• Time to sell - A bridging loan is a short-term loan and there are penalties for going over the 12 months, so make sure you understand your property market and how long your style of property will take to sell. And remember, because you’re effectively adding all the interest to the loan amount, the longer it takes to sell your property, the bigger your interest payments are likely to be.
• Current home value - You’ll need to have a good idea of what your current home will sell for so that you budget properly for the new loan payments. Many people overestimate this, so it’s a good idea to play it safe with a low estimate. The less you sell your current property for, the bigger your ongoing loan is likely to be.
• Two properties to value - A bridging loan may require 2 property valuations, which means two valuation fees.

Types of bridging loans

Closed bridging loan

If you already have a signed Contract of Sale on your current property, you’ll know the date when your home will be sold and funds received. You’ll pay down the bridging loan, plus any accrued interest and fees, on this date.

Open bridging loans

If your current home is not yet sold, a bridging loan can be arranged for a maximum 12 months. You’ll need to be confident that your home will sell in the market conditions at the time. Your Lender can discuss a backup plan in case the sale of your house doesn’t proceed as planned.

How much can I borrow?

You can borrow up to 95% of the ‘peak debt’. Peak debt is the purchase price of the new property plus your current home loan. If you borrow over 80% of the peak debt, you will likely need to pay Lenders Mortgage Insurance.

Choosing the right home loan

When you’re taking out a loan on your next home, it’s important to choose the one that’s best suited to your personal circumstances. For instance, you may prefer a loan that offers greater flexibility, in which case one with a variable rate may be ideal.

On the other hand, if you want more certainty over repayments, a fixed rate loan may be a smarter option. And don’t forget, you can also structure your loan so it‘s split between variable and fixed.

Variable home loan

This type of loan refers to a flexible interest rate that moves in response to market changes.

Things to remember:

• Your loan repayments could go up or down during your loan term.
• You can link your loan to an offset account to help reduce interest.

Fixed home loan

For this kind of loan, the interest rate stays the same for a set period of time.

Things to remember:

• This loan may suit borrowers who prefer the certainty of regular repayments throughout the fixed term.

Picking a repayment option

Typically when you make a loan repayment, you pay off some of the principal balance (the amount you borrowed), as well as the interest accrued. This is what’s known as a principal and interest repayment. But it’s not the only repayment option.

You can also choose to make interest only repayments for a set period of time, meaning you will only be required to pay off the interest charged. To help make your decision easier, here’s some more information about each repayment option.

Principal and interest

Things to remember:

• When you pay off the principal and interest together, you’ll pay off your home faster as you start repaying what you borrowed from the very first repayment.
• You can also link an offset account to your loan to help reduce the interest you pay.

Interest only

Things to remember:

• Monthly repayments will be lower for a set period as you’re only paying the interest being charged on the loan.
• The amount of money you owe does not reduce during the interest only period as you are not paying back any of the principal.
• Your loan will convert to higher principal and interest repayments after the interest only period as you now have less time to pay back the money you borrowed.

We're here to help

Got a question about buying or selling your property? Call us on 131 900, explore our home loan products or visit a branch to talk to your local Home Finance Manager.