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Using your home equity

Many homeowners currently have significant home equity due to rising property values. This excess value can be highly beneficial when purchasing a new home, as it can be used to finance part of the new property.

However, if your existing home has not yet been sold, but you need funds for your next purchase, you may require a bridging loan. This short-term financing solution allows you to use the equity from your current home before it is sold, ensuring you have the necessary funds to secure your new home without delay.

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Keep your current mortgage or take out a new one?

When buying a new home as an existing homeowner, you will often need a new mortgage. You typically have two options: transfer your current mortgage to your new home or repay it in full (without penalty) upon selling your existing property.

The key question is: Which option is more beneficial for you?

• In recent years, when interest rates were low, repaying the old mortgage and securing a new one was often the smarter choice.
• However, if interest rates rise, many homeowners prefer to transfer their existing mortgage to keep their lower interest rate.

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What should you pay attention to?

If you purchased your home at a high price and its value has since decreased, you may be facing a residual debt when selling. This means your remaining mortgage is higher than the sale price of your property.

In some cases, you may be able to include this residual debt in your new mortgage, but there are conditions. Your income must be sufficient to support the additional borrowing, and in most cases, the residual debt must be repaid within 15 years.

While current market conditions may be favorable, property values and interest rates can change, affecting your financing options.

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Buy first or sell first?

This is a common question we receive from clients, and the answer depends on your personal and financial situation. In both cases, there are advantages and disadvantages.

In the current housing market, it may be more practical to sell your current home first before purchasing a new one. This approach can help you avoid the risk of double mortgage payments if your previous home does not sell quickly after buying a new property. However, it also means you might need temporary housing in the meantime.

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A bridging loan

A bridging loan serves as a financial bridge between the sale of your current home and the purchase of your new one. This short-term loan allows you to access the equity built up in your existing property before it is sold, giving you the flexibility to finance your new home without waiting for the sale to be finalized.

Typically, a bridging loan has a term of up to 24 months and comes with a variable interest rate. To qualify, most lenders require a recent property valuation report for your current home. Additionally, many banks will finance up to 90% of your property's appraised value, helping to cover the gap between selling your home and buying a new one.

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What is the transitional right?

If you took out a mortgage loan before January 1, 2013, your mortgage falls under the previous tax regulations. This means you may still benefit from mortgage interest deduction under the old rules. However, if you take out a new mortgage, you must repay it on an annuity or linear basis within a maximum of 30 years to continue receiving the mortgage interest deduction. If you choose not to follow this repayment structure, you will no longer be eligible for the deduction.

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Are you older than 57?

From the age of 57, your income starts to influence the maximum mortgage amount you can borrow. Banks and lenders take your future pension income into account when assessing your mortgage eligibility. Since pension income is often lower than your current salary, this may reduce the maximum mortgage amount you can obtain. However, many lenders offer tailored financing solutions that allow you to borrow more, provided your monthly payments remain affordable. Contact us to explore the best mortgage options for your situation.