The 4 questions to ask yourself when you are thinking about upgrading your family home
We speak to a lot of people who want to upgrade their home. An upgrade can mean a bigger more expensive house, or a renovation on their existing home.
In both cases, you are spending more money, so we look at it in a similar light when assessing the financial side of things.
There are a few things you should consider and tests that you can do to determine whether you are in a position to be able to upgrade to your dream home.
It’s going to cost you more – Whether you buy a more expensive house or you renovate, chances are your overall home loan will increase, which will mean that your home loan repayments will also increase.
You can test yourself to see if you can afford it before you decide to commit. Figure out how much your new repayments will be, which you can do just by using a standard home loan calculator. Whatever the difference is above the mortgage you are already paying, save in a separate account every month. If you can save the extra for 3-6 months every month, this might be an indicator that you can afford a more expensive house. If you can’t do it, then maybe you won’t be able to afford the higher mortgage repayments on the new home loan and you may need to adjust your expectations.
You may need to move out of your home for a period of time- If renovating is on the cards for you, the chances are you’ll also need to move out of your home while the renovations occur. This could be anywhere from 2 months and in some cases we have see 2 years. This means you need to cover rent and likely some of your mortgage repayments during this time. Factor in extra spending in the ‘in between’ period.
Do you have any periods of time coming up where your income might drop? – If you’ve tested your capacity in the first step and figured out you can afford a higher mortgage, then great. The next question however is considering what is coming up in the next couple of years. Do you have any period of time where you expect your income to change or drop? For most people I am talking about maternity leave. This results in a drop in family income and and increase in family costs. Do you think you will be able to cover the costs during this time? If you take on a bigger loan, are you comfortable that you can afford it when there is less money coming in? If not, maybe the timing isn’t ideal.
Why are you upgrading? Do you need your home to be bigger for your growing family? Do you want to change to a more convenient location? Understand why you are doing it, because it will come at a cost. This will help with decision making. Don’t upgrade for the sake of it, especially if it is going to cause you financial discomfort. Make sure you are really thinking about the benefits, pros and cons and your personal values. Upgrading can be great, but…….. it comes at a cost so make sure you are doing it for the right reasons.
We see a lot of people who want to upgrade for so many different reasons. There is no right or wrong, but often the difference between success and discomfort is timing and planning.
If you are starting to think about an upgrade, then consider the 4 points in relation to your situation before making such a big decision, so that when you do make the decision you can do so with confidence.