The best ways to upsize and downsize a house of your dreams
IT is very easy for a family to outgrow a home — and it can happen overnight. Here are some simple steps you can take to get to your dream home.
UPSIZING and downsizing a house is part of the progression of life: many people enter the property market with a small house, as a couple, and find they need a bigger house when they start a family: then, in what seems the blink of an eye, the children move out, the nest is empty, and suddenly a smaller dwelling appeals again.
Or a family could find itself taking in the grandparents, and needing to create space for them.
It is simply a recognition that our housing needs can change with age.
It is very easy for a family to outgrow a home — and it can happen overnight. Stumbling over each other in the one bathroom is one sign. Having older children asleep in rooms just off the family room where the parents spend time is another: when you can’t watch a movie at night or have a dinner party without waking children up, it’s time to change your space.
The progression through residential property used to be from small home to larger home, then to ‘dream home.’ But with house prices in many popular areas rising to ever-larger tickets, many people find themselves stalling on the move to the dream home — and either extending their existing home, or tearing down and rebuilding, to make it the dream home.
“It is very easy for a family to outgrow a home — and it can happen overnight.”
Whether you are upsizing literally, by extending an existing house; or selling your house to move to a larger one, it is likely to involve refinancing your home loan. Inevitably, most people will be looking at a larger mortgage — and higher monthly commitments.
If extending or renovating, you may be able to use part of the equity you’ve built up in your house. It will be up to your lender to determine how much of your equity you can use. Alternatively, you may look to increase the loan amount. As a condition you will need to show that you can service the extra debt.
Some lenders offer ‘building conditions,’ in which you can draw funds from the loan progressively as the invoices for building work come in. Your interest is calculated only on the progressive balance — that is, on the amounts you’ve drawn down to pay invoices. As you use your loan funds to pay more invoices, your interest charges will be calculated on the increased amount of funds used.
Your lender may be able to offer you an interest-only period, of up to 12 months, during the building stage: once this interest-only period has finished, you will start paying principal and interest. This kind of loan can greatly help cash flow while you’re renovating, particularly if you are renting while the builders are in.
Alternative methods of using your home loan to fund your extension works are by using a line-of-credit or redrawing from the loan, if your home loan allows these options. Being able to redraw will depend on how much available redraw you have.
If extending or renovating, you will have to be wary of overcapitalising — that is, spending more on the renovations than you add in value to your property through the renovation. You should get a professional valuation done before you start the work, and also do some homework with real estate agents that know your area well, as to how values have moved recently — and what they think are the prospects for further changes.
After that, put together a budget that has a firm ceiling, and which incorporates all costs, particularly the cost of any demolition and council approvals. Above all, don’t get carried away emotionally — stick to your budget.
Upsizing to a larger home has different complications. A larger property inevitably comes with higher costs in terms of maintenance, property taxes, utilities and home insurance. Stamp duty is one of the biggest costs associated with buying a new home and can add a large percentage to the effective price of your new home. You will also have moving costs, the cost to transfer utilities, and you may need new furniture or fittings to suit your new house.
And if you’re borrowing more than 80 per cent of the property’s value, you may also need to factor in lenders’ mortgage insurance (LMI).
In moving to a bigger house, there is also the issue of timing. If you sell your existing house before you buy a new one, depending on the settlement period you negotiate, you may need to rent somewhere in the interim — for an indeterminate time. But if you buy the new house before you sell the old, you could encounter a problem financing the deposit on the new house when you exchange contracts. This cost can be covered with a deposit bond, short-term credit or bridging finance. Your lender or mortgage broker can help you explore the different options.
At the other end of the scale, those empty-nesters contemplating downsizing may find themselves in the happy position where the proceeds from selling their existing home allow them to pay out their remaining mortgage, and buy into a new property. Those downsizing due to mortgage stress at least get some relief in the form of lower monthly repayments. Your existing home loan may be portable, or you can refinance for a different arrangement. Again, talk to your lender or mortgage broker.