A Relocation Home Loan enables you to purchase your next home and relocate before your existing home has sold, or if you are purchasing land and constructing your next home a Relocation Home Loan will allow you to stay in your existing home until the construction is complete.
How Does Relocation Finance Work?
The lender will advance enough funds to you to cover the Price of the property you are purchasing plus all of the costs associated with the purchase such as Stamp Duty, Solicitor/Conveyancing Fees, Government fees & charges etc. If you are constructing a home the lender will also advance sufficient funds to cover the cost of the construction.
If you have a mortgage on your existing home, the lender will also pay out that debt and hold both your existing home and new property as security for the relocation home loan.
When your existing home has been sold all or part of the proceeds from the sale will be used to reduce the relocation loan to a loan amount previously approved by the lender. This is known as the End Loan amount.
Generally, relocation finance will be granted for a period up to 6 months when purchasing a replacement home or for a period up to 12 months when constructing a new home. In the unlikely event that your existing home has not been sold or construction has not completed by the end of the relocation period, the lender may increase the interest rate or impose penalty charges.
Relocation home loans are usually offered at standard home loan variable rates, with some lenders offering fixed rate options as well as packaged or special offer interest rate discounts.
Repayments During the Relocation Period
Relocation Home Loans have been structured or designed to keep home relocation an affordable process. This has been achieved by allowing the interest charged on the relocation loan portion to be capitalised to the loan during the relocation period so that you do not have to make any loan repayments on the relocation loan portion.
During the relocation period, you are allowed to make payments on the relocation loan portion if you so desire; this will help to reduce the amount of interest that is capitalising to the loan.
Once your existing home has been sold and the loan reduced, the repayments will generally revert to principle & interest repayments based on the end loan amount over the remaining term of the loan.
To better understand how a relocation home loan works, let’s look at an example:
Steve and Chui wish to purchase a home closer to their work to cut down on travel time and travel expenses. They have found a house that is located approx. 30 minutes from their places of employment and is also within walking distance from the local school which makes it ideal for them and their children. The house has just been listed for sale at $450,000 and is attracting plenty of interest. They will need to act quickly to secure the property and will not be able to delay the purchase to coincide with the sale of their existing home. Their existing home is valued at $400,000 and they have a current mortgage of $200,000.
To purchase the new property they will require a loan of $470,000 (Price $450,000 plus Purchase Costs $20,000). Interest Only Repayments for this loan will be $2742 pm. Combined with their existing mortgage repayment of $1679 pm they will have monthly mortgage repayments totalling $4421. An increase to their budget of $632 weekly?
Steve and Chui decide upon a Relocation Home Loan of $670,000 with an End Loan of $295,000 and the reassurance of not having to stretch their budget beyond a comfortable limit.
|Existing Mortgage||$200,000||Sale Price
|$ 20,000||Sale Proceeds||$388,500|
|Total Loan Required||$670,000||plus Allowance
for Capitalising Interest
|$13,500 ($380,000 @7% x 6mths)|
|less Proceeds from Sale||$388,500||End Loan||$295,000|
|Monthly Repayments||$2477 x 17 yr loan term|
Within 2 months Steve, Chui and family were living in their new home. They had secured a buyer for their existing home with settlement taking place in the 4th month. They are now spending less time and money travelling to and from work and their children are happily settling into their new school. During the relocation process they were only required to make 4 monthly loan repayments of $2477 (which fitted ideally within their budget); as opposed to $4,421
if they had used traditional borrowing methods. They were left with undrawn loan funds of $4,555 which they could either save and leave in the loan or withdraw and use as they would like.
|Traditional Borrowing||Relocation Home Loan|
|Monthly Repayment required during the relocation period = $4421 ($1679 – existing loan of $200,000 + $2742 – new loan of $470,000).||Total Payment for the 4 month relocation period = $17,684 (4 x $4421)||Monthly Repayment required during the relocation period = $2477 ($2477 end loan of $295,000.
Nil repayment for relocation loan $375,000)
|Total Payment for the 4 month relocation period = $18,853 ( 4 x $2477 + $8,945 capitalised interest)|
Things you should know about Relocation Home Loans
Relocation Loan with no End Loan
Your relocation home loan is paid out in full when you sell your existing property and there is no loan debt remaining. no repayments are required and interest is capitalised until the end of the relocation loan period.
Relocation Loan with an End Loan
Your relocation home loan is partially paid out when you sell your existing property and there is a loan debt remaining.
No repayments are needed and interest is capitalised on the loan portion to be paid out with the proceeds from sale of your existing property
Repayments are required on the end loan which is the loan portion you have chosen to remain after your existing property is sold and the proceeds have been used to pay down the original loan amount.
Relocation Period for Non-building Loans
The sale and settlement of your existing property must be completed within 6 months of the date of the first advance under the loan.
Relocation Period for Building Loans
12 months in total. 6 months to build your new home and 6 months to sell your existing home.
Benefits of a Relocation Home Loan
A Relocation Home Loan removes the stress of timing the sale of your existing property with the purchase of your new property. Take up to 6 months to find a buyer for your existing home.
Remove the worry associated with finding the money to cover your deposit on the new property, purchase costs including stamp duty and solicitor fees, relocation expenses and construction costs if you are building, as all of these can be included in your Relocation Home Loan.
Repayments to fit within your budget as there is no requirement to make monthly repayments on the relocation portion of the loan.
Stay in your home for a period of 6 months while you build your new home and then take up to a further 6 months to sell your existing property A cheaper and more affordable alternative to bridging finance. Competitive interest rates and loan packages available.
Do You Qualify for a Relocation Home Loan
It is important to note that not all lenders offer Relocation Home Loans and for those that do, the requirements and policies of each lender can vary significantly.
The most important factors that will determine your eligibility for a relocation home loan are the amount of equity that you have in your existing home, your ability to service the end loan and your ability to repay the relocation loan within the relocation loan period.
To find out more about Relocation Loans or whether a Relocation Home Loan would suit your situation, give us a call on 1300 448 911 or email us your contact details and we will call you.
* Loans subject to application and approval. Terms, conditions and eligibility criteria apply. Fees and charges may be payable. Extra conditions may apply to the loan if the relocation loan is not satisfied within the relocation loan period. On satisfactory completion of the relocation loan requirements and conditions, the loan converts to the home loan of your choice.