Here at My Mortgage we are often asked for our opinion about a certain property purchase and the pros and cons of it. We like to stay objective on these sort of things but we do have opinions and if pushed, we'll happily share them in terms of what we would do if we were in the same situation.
Upsizing your family home may need to be done for a variety of reasons. Things like growing kids take up more space, growing families may require more bedrooms, or just the need for a second bathroom can be enough to push us over the edge (it was for me and my wife!). Whatever the reason, upsizing is a decision to take seriously as it can sometimes be tempting to keep doing it and never get ahead but lifestyle and way of living can sometimes outweigh the actual financial cost.
This upsize may not be to the home of your dreams but to the next step in your property ladder but it helps make the next step after this one not so large.
As of right now in 2020, interest rates are at an all time low. Borrowing money has never been cheaper and it looks like rates aren't going to increase much over the foreseeable future. That does make a move up the property ladder by a couple of hundred thousand dollars a pretty cheap thing.
Let’s look at a scenario on that.
Say your current property is worth ~$500K and you’ve got about $370K owing. Roughly that means you'll have $130K after sale. That’s 20% of a $650K purchase and 20% equity in a property is always a good place to be as it’s the cheapest way to borrow if nothing else in terms of ease.
So your mortgage goes from $350K to $520K but you’ve got it structured over a new 30 year loan term and fixed interest rates @ 3.1% so your weekly payments are just under $510.
What other factors are there to take into consideration?
Thinking about things in the bigger picture, unless you are planning a change in career or some major life event happens, you wont be any less financially stable position than you are now. You and your partner should both continue to increase your income at some level and therefore make your financial situation easier.
You’re eventually going to want more space for your family or a newer home in time and if over 10-15 years property prices nudged up by 5% per year, the next family home is only going to get further away the longer you leave it as yours isn’t gaining as much as that is in real terms. With these currently low interest rates, being able to take that step now and then settle for 5 - 10 years will give you more options down the track.
You can of course pay considerably more on the mortgage if possible and then dial it back if and when you need to due to the way life goes.
Looking into the future
It’s not that easy currently for people to see what our lives will be in 10 years time but even with inflation only increases in income, paying your mortgage off is always going to get easier as your mortgage won’t be increasing.
Essentially it is no concern to be back on a 30 year loan term for those in their mid to late 30's now because that will easily be able to be paid off as the family grows up and you’re earning more.