The decision to upsize your family home is often years in the planning and part of your long-term wealth strategy, but sometimes life can spring the change on you.
Covid and the work-from-home movement has encouraged many owners to seek larger properties so they can take calls in peace and stop balancing their computer on the edge of the kitchen table. The arrival of a new baby can also force you to reconsider your space.
But upsizing to a larger family home is also a significant financial decision as it commits you to a bigger mortgage, increased utility bills and higher rates and taxes.
The costs can be worth it. A larger home can be a better investment and offer long-term financial security. It will also allow you to cope with a growing family.
To successfully upsize, you need to be clear on the features you need or risk making an expensive mistake. It’s also important to understand how far your finances will stretch, so you spend your time viewing only those homes that you are within your reach.
Dealing with the financial aspects of upsizing can be confronting, so here is a checklist of the issues you’ll need to address. Think of them as a framework to help you think about your move in a constructive and productive way.
- How big is your budget? – Check out the equity in your current loan as this will be the foundation of your future borrowing. Some banks will lend up to 80% of the existing equity. (For clarity, equity is the difference between the original size of your mortgage and the sum you’ve paid off.)
- Work with your lender or broker – It’s a great idea to speak to the experts rather than assume how much a bank might lend you.
- Get a pre-approval – This will allow you to make an offer on a home, or participate in an auction, knowing your lender will support you to a prescribed financial limit. Be aware that there’s a final approval process, in which the lender will value the property you want to buy.
- Can you cover upgrade costs? – These will include items such as stamp duty, refinancing costs, fees for your agent, lawyer and conveyancer. Don’t forget you’ll need to pay building and pest inspectors, and the furniture removalists.
- Don’t forget higher running costs – These are inescapable. Larger homes require more heat, more cooling and more maintenance.