First consideration: the financial implications — not the costs
Before you put your home on the market, it’s wise to consider your motivations for doing so. This is something we discuss in one of the very early sections of our free educational guide, Selling Your Property: What You Really Need to Know, because it’s often easy to lose track of your goals and reasons for selling the further into the process you get. Possibly the most important thing to consider before selling your home is what the financial implications may be.
The costs involved when selling
Before we get into the financial implications of selling your property, we’d just like to point out that these are very different to the costs associated with selling property. There are typically four common costs associated with selling a property — preparing your home for sale, hiring a real estate agent, marketing and advertising costs and hiring a conveyancer — none of which are usually determining factors in whether you should sell your property or not.
Buying before selling and taking out bridging finance
In Sydney, properties spend an average of just 30 days on the market; this has led many Sydney homeowners to buy first and sell later. In doing so, however, this can mean having to take out bridging finance to tide you over until your home sells.
Before you start looking to buy, it’s smart to have a conversation with a few real estate agents first, to find out how long your home may take to sell. This is important because a bridging loan is still like carrying two mortgages, which may be a lot to manage financially over a long period of time.
The size of your commitment is calculated by adding the value of your new home to your outstanding mortgage, and then subtracting the likely sale price of your existing home. What’s left is referred to as your outgoing balance, and represents the principal of your bridging loan.
Bridging loans are also interest-only, so during the bridging period of say, six months, interest will be compounded monthly on your ongoing balance at the standard variable rate. The interest bill will then be added to the ongoing balance when you sell your house, and this amount becomes the mortgage on the new property.
The biggest mistake most homeowners make is overestimating the value their existing home will sell for. If anything, you’re better to take a conservative approach when doing the sums to see if you can really afford bridging finance.
Stamp duty or transfer of land duty, is a tax you pay on the sale or transfer of land, including improvements. Stamp duty is only paid by the buyer or the transferee. This means you won’t pay it on the sale of your property, but you will pay it when you buy another one.
Stamp duty is calculated based on the value of the property, and varies state-to-state. If, however, you purchase a property in NSW valued at $1 million (the median house price in Sydney), you will pay, in stamp duty, $8,990 plus $4.50 for every $100 over $300,000, or $40,085.45, according to the NSW Office of State Revenue.
Visit your state’s revenue office website to determine how much stamp duty you’re likely to pay on the purchase of your new home.
Loan discharge fees
Melanie Cunliffe is a mortgage and finance broker and the owner and founder of Indigo Finance in Sydney. She advises any homeowners who are thinking of buying and selling their property to touch base with broker or bank contact and inform of plans.
“Whether you are paying out your mortgage or refinancing, your transaction will incur discharge fees,” she says. The fees vary lender-to-lender; usually in the vicinity of $150-350. Melanie also advises people on fixed rate loans to take particular care. “There are heavy penalties for breaking fixed rate loans,” she warns. “You may have to pay early repayment costs and any other applicable penalties. These can go into the thousands and even tens of thousands of dollars. Certainly, you may be able to keep your loan if its portable and transfer your mortgage to the other property, mitigating the heavier costs.”
Mortgage insurance is a type of insurance that protects the lender in the event that the person or people buying are unable to meet the loan repayments and the net proceeds of an enforced sale of the property would not be enough to cover the loan. The existence of mortgage insurance reduces the risk to the lender and therefore enables them to approve a larger amount of money for a homeloan, without the borrower having to provide the standard 20% deposit.
“Remember that if you have paid mortgage insurance on a loan when buying, if the loan is discharged, then it’s not transferable and may be payable again,” Melanie advises. “Speak to your bank or broker to see if there is any way around this.”
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If you’re thinking of selling your home, and you’d like to lean more about the sales process, download our free, educational guide, called Selling Your Property: What You Really Need to Know, by subscribing to our website. Alternatively, for more property market news, insights and analysis, continue reading our blog.
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Our educational blogs are designed to help you understand each of the steps involved in selling your property so whether you choose to work with a real estate agent or do it yourself you'll understand the work involved and be more efficient and aware of what you need to do. Our articles have been seen in these major online news and information portals..
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