Welcome back to Sugar Mamma's Fireplay and even better, to another empowering episode of our mini series Ask Adam, where I get to sit down with my trusted mortgage broker and lending expert, Adam McKay from Blue Lantern.

Today, I'm going to ask Adam about a question that I get asked all the time for my community, and that is, how do I know if it is time to upgrade our home?

So, whether you're feeling cramped, or you're dreaming of a lifestyle change, or you're just questioning your current home and if it actually still suits your need, this is the perfect episode that will help you recognize the signs that it might be time to move, but even better and more importantly, give you that practical financial steps and instructions to explore what is actually truly possible right now.

So if the idea of upgrading your home is on your radar or even just a little bit curious, this is the perfect episode for you.

Good morning, Adam, how are you?

I'm well, Thank you.

I've got lots of questions to ask you about what's going on in the mortgage market and the property market, but today I really want to focus on that stage of our lives that we all go through, just with the natural evolution of life, where we think, you know what, we need more space, we need to move into a bigger home, or we've paid off a large amount of the mortgage and the properties our homes got up in value.

Perhaps we use this as a great opportunity to upgrade to a bigger home or a different area.

So I want to talk about like those signs, but then what we need to do from a practical point of view, so that we, you know, are very methodical, We're very wise.

We don't have any regrets, and we don't sort of get ahead of ourselves and realize that we're not actually we don't have our ducks lined up correctly.

So I guess it's really about making great decisions and being prepared and organized so that you know, the mortgage process is smooth, easy, and we understand what we can do and what we can't do.

Yeah, are you happy with that?

Yes?

Look, it's a difficult It can be a difficult process upgrading.

You need a few things to go your way, selling and buying at the right times and matching up those those dates.

That's flying part, I know, because I've gone through this many times with you being my mortgage broker.

We have we could gosh, we have some stories to share, but we'll save that for another time.

So that means I am extremely confident that you know exactly how to break this down because you and I've gone through this so many times.

Let's go start with I guess the signs that someone might be ready to upgrade their home, like what are the typical phone calls that you get from your clients saying I'd break it.

Into categories because for mine, there's two.

So there's the financial category, so cash flow, you've got the ability for a larger to afford a larger mortgage.

And the more emotional side, so growing family, moving for an area that's going to have you know that the schools that you're looking at, put your kids into more space, a pool, all those types of things.

So there's the emotional side and the or family decisions and financial.

Do you ever come across, particularly in an economic environment like this, where people are like, you know what, we've paid off so much of the mortgage.

You know, we're comfortable.

We just feel like we want to stretch ourselves a bit more.

And that's like it's not emotional, it's more financially driven.

Or they see that they've you know, perhaps capitalized on this property.

It's not that they're currently living in.

They're not going to necessarily see much more growth in that and they want to maybe move into something else and maybe renovate it and maybe flip it like they did previously.

Do you see much of that?

We do?

And they're interesting conversations because the alternative is stay, be mortgage.

Free, which sounds really smart.

Sounds amazing.

You know, then instead you could do some investing, which is great when you've got no mortgage, or when you do have a mortgage.

But which is debt recycling, recycling.

But yes, and the conversations are around you know, how much will impact their lifest if they're upgrading and they've got no mortgage at the moment.

But at the end of the day, if it's a family decision that's necessary.

Then go for So how do you then work out whether it's an ego driven pool like a bigger home, a better suburb, you know, a better opportunity, or it's like actually financially sound like, actually this is the right move for our goals.

Is how would you talk a client through that decision process.

Yeah, it's tricky.

I mean that when you're upgrading, if you think about a lifespan of a mortgage, ideally you want to be twenty to twenty five years if you can up to thirty, So taking out another mortgage after paying so much of one off is a big.

Decision, particularly like if you're in your fifties, because that would mean.

Correct then you're looking at what's retiring.

Five and still a mortgage.

Yeah, what's the retirement looks like.

But obviously if you're upgrading, then you know at the same time, when you get to retirement, then there's the option of downgrading, which a lot of a lot of people do.

You don't want to be left with a massive house.

It takes a lot to up maintenance and that's course.

So look, there's there's the option to downgrade again as well.

But I think you just want to be making sensible decisions that while you're upgrading that you still have you're not putting too much of your cash flow into the mortgage just to upgrade.

And that's because of become a slave.

Yeah.

Look, and as kids get older, you know, education costs couldn't go up.

You know, you've got to replace cars, you want to do a family holidays, So upgrading is okay.

But as long as you still can maintain that lifestyle that you're looking for for your family, Yeah, I.

Think that's such wise advice.

Thank you.

So for people who already own a home, say for example, a family, maybe they're living in an apartment and they are like, right, okay, we've got another baby on the way.

We really look at getting and moving into a bigger place.

But it will be a bigger apartment, a townhouse or even a house.

What is the very first step that they should do when they're thinking about upgrading?

Is it jumping online and looking at property or is it giving you a call or a mortgage broker a call, or the banker call?

Like what comes first?

I would say, yeah, contacting us, your bank, you're broker.

Because if you go and spend all this time and energy into looking at upgrading and it's not achievable through loan approvals or the valuation on your property, to waste.

So start the process speaking to real estate agents as well, to understand what the market looks like in your current area, when you could sell for and how long it would take to sell.

So going back for a second to you know, speaking for example, to you, you know, you would obviously have that conversation about Okay, this is potentially how much money you could borrow, and this is what your mortgage repayments would look like.

So you can then go, okay, all right, I'm comfortable with that size loan and yes, I've checked our budget.

We can definitely service a mortgage of that size with still allowing holidays and potential school fees and you know, other sort of costs of life without compromising a quality of life.

And then with that boundary of going right, we've got a budget of this much money to go and upgrade our home.

That's when you have the conversation then with the agent about what you can buy but also about what you could sell for.

Is that right?

Well?

Yeah, As we mentioned earlier, it's a tricky process getting the timing right of buying and selling.

You know, bridging finance is an option, but it's an expensive one.

So what a lot of clients of mine do that I see is you buy a property with an extended settlement period, which then allows them to put their current property on the market and try and line that up so we start the process, understand what your living expenses are, what you can afford, obtain a pre approval.

We can also help with the valuation side of your existing property and just understanding sort of the market or comparable sales in that area.

Get your pre approval, and then speak to a realistic agent because you need They're really key of helping you get the comfort and confidence that you can sell within a certain period.

The last thing you want is buying.

Have that commitment, and then you can't.

Sell or have to sell for a lot less.

A lesson you like, yeah, under pressure, I guess strategically juggling that buying over here and selling over here.

Do you recommend to your clients having a safe buffer, you know, a worst case scenario you sell for this, your mortgage will therefore your new mortgage that is obviously will therefore be this Like, how do you do it carefully?

Because I've done it before, you know, we bought before we've sold.

It's terrifying.

I like to have because if I'm giving the advice, I want to be sure that that I'm getting it right.

And I've got a backup option as well as well.

So that's why I look at bridging finance simultaneously with also just a normal prey approval.

We want to make sure that you can do both and if not, give the advice that it's not so perhaps that there means you need to sell first.

But we're always looking at you know, sensitivity in regards to the sale price.

Yeah, and having a buffer five ten percent ideally five that's good to know.

Can you just for the listeners just quickly explain how bridging finance is a safety net, expensive one.

It's expensive one, but it does where people are in situations where they can't sell immediately.

For example, someone agrees to buy their home but they have a delayed settlement because they say living overseas the new buyers and for whatever.

And there are lots of different reasons you know, not just can't sell.

Where bridging finance can actually be a saving grace.

Yeah.

Look, it can also be where you live.

You know, if you live in Sydney where the property market's running pretty hot, particularly somewhere like the Eastern suburbs, or in a Sydney you're going to have a fast selling period compared to regional areas.

But bridging finance is essentially a six to twelve month period where you carry your existing the debt on your existing home plus the purchase price less any cash that you've got of the new purchase us and so you're borrowing the whole mount for the new purchase, less any cash that you're putting in, and then you're paying interest on both.

So you're paying interest on two homes until you sell your old home.

What's the interest rate like on a bridging locause A lot of people actually assume it's like eight nine percent.

It can be wow.

It depends on the lender.

And on the how good a mortgage broke it you have.

Correct the lenders have a pull back, maybe not a pull back, but they're discounting on bridging.

Debt has eased, and some lenders don't provide discounts at all.

So you're paying like what we would call a base variable rate or a standard variable rate without any discount margin applied.

So that can be eight ton ouch.

It's expensive.

Yeah, but obviously the bank's carrying a greater risk because if if you don't sell within that bridging period, the approved bridging period of six to twelve months, then they can come in and forcibly sell for you, which might that can mean a much.

Lower sale price or you know, it also can be it buys your time though, if you are stuck in between two properties.

Look, it's sometimes it's just a necessary evil.

Yeah, an opportunity cost if you can't because when you're buying this new home, if the seller doesn't want to give you an extended period and you desperately want the home, you just take it.

Then you've got forty two days whatever state you're in.

But that's when bridging finance is necessary because you don't have enough time to sell at a shorter period.

And of course, the moment the property is sold, that loan is immediately cleared and you're back on your merry wag again in your new home.

Yeah, that's right.

And it also, you know, apart from being a necessary evil, it also allows you to move seamlessly, so by the new place move in, you're not homeless for a certain period or renting for a short period, you know, stuck without it.

So there are some positives to it, but mainly it's an expensive.

It's good to know about it as a backup plan, you know, and be aware of it.

But obviously it's avoidable if possible, and This is where obviously the value of a good mortgage broker to talk you through all the different options and help minimize this.

Actually, yeah, and a good real estate agent.

I encourage my clients that are in bridging to have really open, honest conversations with their agent about their situation and what their plan is, because it can you know, if bridging finance is only for a very short period, then you know it's a great solution that hasn't cost you too much.

But if it's a bridging finance that you're absorbing and taking for twelve months, then it really gets expensive.

All right.

What are some of the I guess traps and or hidden costs that people often overlook when it comes to upgrading your home by moving into a bigger home, more expensive home.

Look, the biggest ones are obviously stamp duty.

You know you're paying stamp duty again all over again, so look, that's sometimes forgotten.

I think stamp duty.

Others would be mortgage insurance potentially depends.

Yeah, look, you know you shouldn't.

That shouldn't be a trapper or something you're unaware of, because a good mortgage broke or broke would explain all of that to you.

And spell out all of those costs more than unknown.

Really, I guess you know, if you don't do do your research on properly you're buying, and you buy.

A lemon, Yes, you don't get a building inspection.

Report done, Yeah, definitely that one.

You know, location, unfriendly neighbors, not doing your research.

These are all things that we talk about for first home buyers.

Do drive buyers of the new neighborhood at all times of day and night.

And checking in with your counsel to see what potential developments are happening nearby, like an apartment block in your backyard.

Something getting knocked down the day after you moved in.

Yeah, they're about they're about the traps.

I'd say the trap that Tom and I went through with our home in upgrading our home, which I'm pretty sure you're aware of because your mortgage broker was.

We got a.

Building in pest inspection done and it was fine, but because we had a delayed settlement of moving in and it was during I always get this mixed up Withino El Nino where it was raining.

So during that delayed settlement period, the roof had all these leaks that they didn't know about and fair enough, But we only discovered the water damage after we had settled and moved in, and we walked into two meters by one meter of just black mold.

And you know, I think we went through I think one hundred and something thousand dollars worth of repair, not renovations, repairs in finding all these like bits.

But this is just one of the riskly I guess it's one of the risks people don't talk about when it comes to a delayed settlement and the importance of having those reports done, which we did, but because there was the damage, it was actually done after having that report done, So you've got to be so careful.

Really good point.

The black mail one is interesting because it's so common in Sydney.

Oh yeah, yeah, just doing in your inspection, looking in little corners and ceiling.

And getting a guarantee on the report if you can as well to protect yourself.

All right, interest rates, you know, obviously on the are on the forefront of everyone's mind right now.

What advice do you have for people who are thinking of upgrading today with the property market where it's at and interest rates where they are currently are.

Look, interest rates are interesting.

We're starting to see a bit of competition, come back with discount.

Oh tell me more, we want savings.

Yeah, so I've talked about this before.

You know, you get lenders or banks who have got reporting to their shareholders on the horizon.

They're the ones that I find are a bit great.

I wouldn't say greedy.

But you can see whatever you like, this is.

The wrong word.

They're the ones that are willing to dig a bit deeper to win new customers, and they want to win them in big numbers.

So when we see that it's a real opportunity to get a really good deal because they're digging deeper than the norm, it would then indicate that it's an interest rate.

It's not going to be there for long, so it might be a one or two month offer.

But for me, I love that because it more or less means that you shouldn't need to be changing lenders for quite a number of years to beat that that variable rate would be.

So it really means that you can sort of nestle in with one bank for the long haul, which is what you want to do.

The less you're refinancing, the better, so it gives you some stability and length of just debt reduction without resetting your mortgage.

But it should mean that you're getting that interest rate for a long time, a good discount.

So if you're not getting that discount, you should be on the phone asking yes at loyalty tax.

And that's when you've got to learn how to bluff.

Basically, say that you're willing to move, you're looking at other lenders.

You can't just call and ask for a better rate, yeah, because they're not friendly.

Yeah, you got to know your numbers, know the value of your home, how much you've you owe, how much you've already paid off.

You've got to be armed all the information.

So they take you seriously and just quickly, can you explain to the listeners and you know about the importance of calling a mortgage broker rather than just calling up the bank, your bank directly as to where your existing mortgage is when it comes to upgrading.

Because I think a lot of people think, oh, well, my mortgage is with bank X y Z, so we're thinking of upgrading, we'll just go straight to our bank X y Z and get them to all guys alone.

Why is that not necessarily always the best idea?

Well, because it's you're getting biased advice.

Firstly, you're only getting what that bank will offer you.

Not every lender will do bridging finance.

Is only a handful out there that do bridging finance.

So if you're looking to upgrade and bridging may be required, you need to speak to a mortgage broker who can line you up with a pre approval at the bank that will provide that as well.

Because if you're going signing contracts and purchasing and then you realize you're with a bank that doesn't have bridging finance and you need to turn to it, then you're changing banks again.

So going with a broker gives you that choice, unbiased advice about getting you the best deal and the banks that will suit your needs at the time.

And if upgrading is what you're doing, you need to be with someone that does bridging as well.

If I bank with Bank X, Y Z and I want to upgrade, will you and I reach out to you and say, hey, Adam, we're thinking of upgrading.

We need more space.

We've seen this house across the road that we think would be perfect.

You know, we currently bank with these people.

Can you work with that bank to keep it if it is actually better for us to stay with them.

Yeah, I do that quite a bit, Kenner.

And as we've talked about before, I can't hand on heart tell someone to move if it's not in their best interests, and we're obligated under a best interest duty of our credit license to act that way in our client's best interest.

Trying to get someone to move for the sake of it is yeah, nothing that I'm comfortable with doing.

So we work with customers existing banks all the time.

We've got access to everyone out there.

So as we've said before, we get paid a commission, which is the same everywhere.

So our motivation is just getting the best deal, and if that's with your existing lender, then we do that as well.

That's so good to know, all right.

Finally, for people who know that they do need to move at some point, maybe be next to year year or the year after that, but they're not ready now as in today, what are some things that are really wise and sensible to do to help them prepare when they do want to move in there in a really strong position financially to be able to afford to upgrade, but also afford to upgrade, but stay on top of their finances and see that continued debt reduction of their mortgage in their lives.

It would just be to continue either putting money away in offset or into your home loan as much as you can as redraw.

As we know, when you're upgrading, there's moving costs.

As we talked about stamp duty, it's legal fees potentially, am I.

The more money you've got up in your pocket, the better.

It could be the difference between winning that properly that you really want and not.

But other small things as well, like if you're your current home needs a bit of work done, start taking away doing little upgrades or painting or whatever it might be.

To prepare for sale as well, so that it.

Looks you know, open inspection ready.

Yeah, exactly, because that could be the difference between really quickly and not.

You know, as we said, bridging finance is very expensive if you want to avoid it a little cost, so be prepared.

Start early.

If your current home needs a bit of work, start that early because your buyers.

Come and go, and they say that the serious buyers normally are within the first week or two weeks.

Yeah, and if if you don't catch them, then they won't unlikely be back.

Yeah.

Wow, Okay, I feel like, even though I've done this so many times in my life, and I've known this so many times with you in my life, I feel like I just it's such a great refreshing reminder, you know, for everyone, including myself.

So thank you so much.

And there's some really great, you know, words of wisdom there, and of course your advice is always appreciated but also incredibly valuable for everyone.

Thank you, Kenna.

So if you look for everyone who's listening right now, if you're thinking about making a move, whether it's upsizing, changing suburbs, or even just dreaming of more space, I really hope that you've enjoyed listening to what Adam has had to say and the advice and wisdom that he's shared, so that you feel informed and empowered at all times.

And if you ever want tailored expert support for your own situation, if it's upgrading, it's looking at debt recycling, refinancing, or even looking at gearing for self bettered perfunds, I can't recommend Adam of course and his team at Blue Lantern, And no this is not sponsored at all.

I'm just happy to recommend someone that I know is going to take great care of you, and you're going to get quality, independent advice, and everyone that's met Adam and his team know how much they genuinely care and the level of detail and of course support in educating you around your loan so that you know how to use it to your financial advantage and hopefully you get to eventually say goodbye to that home loan and work on your other exciting financial goals.

So I was always I always put Adam's details because I get DMed all the time asking for his email address and phone number.

So I'm just going to put it there for you so you can access it directly.

And for anyone that is interested in putting through some questions for Adam to answer as part of Ask Adam series, feel free to send them to me or to even Adam directly.

Thanks again, Adam of course for sharing your wisdom, and thank you everyone for tuning in.

Until next time, keep that financial fire burning bright.

This is Ask Adam as Sugar Momma's fireplay series