Upgrading your family home usually means borrowing more, but the way you structure that lending can make a significant difference to what you end up paying and how much flexibility you keep.
Many families in Eastwood reach a point where the two-bedroom unit near the station or the older villa on a smaller block no longer works. You might need another bedroom, a backyard for the kids, or simply more space as your household grows. The question isn't whether to upgrade, but how to fund it without locking yourself into a loan that costs more than it should or leaves you with no room to move if circumstances change.
Using Equity to Fund the Upgrade Without Selling First
If you already own property, the equity you've built can be used as part of your deposit on the next home, which means you can buy before you sell. This approach relies on accessing usable equity, which is typically the difference between what your current property is worth and what you owe, minus a buffer that lenders require you to keep. Most lenders will allow you to borrow up to 80% of your current property's value without paying Lenders Mortgage Insurance, though some will go higher if you're prepared to cover that cost.
Consider a family who owns a two-bedroom apartment in Eastwood purchased several years ago. The property is now valued higher than the original purchase price, and the loan balance has reduced. They want to buy a four-bedroom house in the same suburb but don't want to sell their apartment until they've secured the new property. By accessing equity, they can use that amount toward the deposit and costs on the house, then sell the apartment once settlement approaches. This approach avoids the risk of selling first and needing to rent while searching for the right home.
What Loan Structure Works When You're Holding Two Properties Temporarily
When you're holding two properties at once, even for a short period, the loan structure needs to account for the higher repayment load and the fact that one property will be sold soon. A variable rate on the property you're selling gives you the flexibility to pay it out in full without break costs, while a split loan on the new property lets you lock in part of the rate and keep part flexible for offset benefits.
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An offset account linked to the variable portion of your new loan allows you to park the proceeds from the apartment sale temporarily if there's a gap between settlement dates, reducing the interest you pay during that period. If you fix the entire loan, you lose that flexibility, and any lump sum repayment could trigger penalties depending on the lender's terms.
In our experience, families underestimate how much it costs to carry two properties. Even a few weeks of dual ownership adds up when you're paying two sets of repayments, and if the sale process drags out, the financial pressure builds quickly. Having a loan structure that can absorb a lump sum repayment without penalty makes that transition much less stressful.
How Eastwood's Property Mix Affects Your Borrowing Capacity
Eastwood's housing stock includes a high proportion of older units, townhouses, and mid-rise apartments, particularly around the retail and transport precinct. If you're moving from an apartment to a standalone house, lenders will reassess your borrowing capacity based on the new property type, its location, and the total loan amount.
Some lenders apply stricter serviceability criteria to apartments in certain postcodes or buildings with higher unit density, which can affect how much they're willing to lend against your current property when calculating usable equity. If you're upgrading to a house, the new property may be viewed more favourably, but the larger loan amount means serviceability becomes the main constraint. Lenders will assess your income, existing debts, and living expenses to determine whether you can comfortably service the higher repayment.
This is where a loan health check on your current lending can identify whether you're on a rate that's higher than necessary. If you've been with the same lender for several years without reviewing your rate, you might be paying more than new customers, which reduces your serviceability on paper and limits how much you can borrow for the upgrade. Switching to a lower rate or negotiating a discount before you apply for the new loan can improve your borrowing capacity by several thousand dollars.
Portable Loans and Whether They're Worth Considering
Some lenders offer portable loans, which allow you to transfer your existing loan to a new property without refinancing. This can be useful if you're on a particularly good rate or if you're still within a fixed rate period and want to avoid break costs. However, portability isn't always straightforward. The new property needs to meet the lender's criteria, and if you're borrowing more, the additional amount will be assessed at current rates, which might be higher than what you're paying now.
If your existing loan has features that are no longer available, such as a high offset limit or a specific rate discount, portability can preserve those benefits. But if your current loan is uncompetitive, portability can trap you into outdated terms. It's worth comparing what you'd pay by refinancing the entire amount with a new lender against what you'd pay by porting the loan and topping up with your current lender.
Fixed, Variable, or Split: What Makes Sense for an Upgrade
When you're upgrading, the loan amount is usually larger, which means the impact of rate movements is amplified. A split loan lets you fix a portion of the loan to protect against rate rises while keeping a portion variable so you can make extra repayments or link an offset account. This approach is particularly useful if you're expecting a lump sum in the near future, such as proceeds from selling your previous property, a bonus, or an inheritance.
Fixing the entire loan removes interest rate risk but also removes flexibility. If you receive a lump sum and want to pay down the loan, most fixed rate products will charge break costs if you exceed the annual repayment limit, which is often capped at $10,000 to $30,000 depending on the lender. A variable rate gives you full flexibility to make unlimited extra repayments, but you're exposed to rate rises, which can increase your repayments significantly if rates move against you.
We regularly see families who fix their entire loan at the peak of a rate cycle, then find themselves locked in when rates start to fall. Alternatively, those who stay fully variable during a rising rate environment can find their repayments increase to the point where the household budget is under pressure. A split loan is a middle path that suits families who want some certainty without giving up all flexibility.
What Happens to Lenders Mortgage Insurance When You Upgrade
If you're borrowing more than 80% of the new property's value, you'll likely need to pay Lenders Mortgage Insurance again, even if you paid it on your previous property. LMI is calculated based on the loan amount and the loan to value ratio, so a larger loan or a smaller deposit means a higher premium. This cost is usually added to the loan rather than paid upfront, but it increases the total amount you're borrowing and the interest you'll pay over time.
One way to avoid LMI is to use a larger deposit by accessing more equity from your current property or by combining equity with savings. If you're close to the 80% threshold, even a small increase in deposit can save you several thousand dollars in LMI. Some lenders also offer LMI waivers for certain professions or if you're borrowing through a specific product, so it's worth exploring whether you qualify before assuming you'll need to pay the full premium.
When Refinancing Your Current Property Makes More Sense Than Porting
If your current loan is more than two years old, there's a strong chance you're not on the lowest rate your lender offers. New customers often receive better rates than existing customers, and unless you've actively negotiated or switched lenders, you're probably paying more than you need to. Refinancing your current property before you apply for the upgrade can reduce your repayments, improve your serviceability, and increase how much you can borrow for the new home.
Refinancing also gives you the opportunity to restructure your lending so that the equity release is built into the new loan, rather than bolted on as a separate top-up. This can simplify your repayments and give you access to features like offset accounts or redraw facilities that your current lender might not offer. The cost of refinancing is usually limited to discharge fees from your old lender and application fees with the new one, and in many cases, lenders will waive or rebate application fees to win your business.
Call one of our team or book an appointment at a time that works for you. We'll review your current lending, calculate how much equity you can access, and structure a loan that gives you the flexibility and features you need to upgrade without overpaying.
Frequently Asked Questions
Can I use equity from my current home to buy a new one before selling?
Yes, if you have usable equity in your current property, you can access it to fund the deposit and costs on your next home. Most lenders will allow you to borrow up to 80% of your current property's value without paying Lenders Mortgage Insurance, though you can go higher if you're willing to cover that cost.
What loan structure works if I'm holding two properties temporarily?
A variable rate on the property you're selling avoids break costs when you pay it out, while a split loan on the new property lets you lock in part of the rate and keep part variable for offset benefits. This structure gives you flexibility to manage the transition without penalty.
Do I have to pay Lenders Mortgage Insurance again when upgrading?
If you're borrowing more than 80% of the new property's value, you'll likely need to pay LMI again, even if you paid it on your previous property. The premium is based on the new loan amount and loan to value ratio, so a larger loan or smaller deposit means a higher cost.
Should I refinance my current property before upgrading?
If your current loan is more than two years old, refinancing can reduce your repayments and improve your borrowing capacity for the upgrade. It also gives you the chance to restructure your lending and access features like offset accounts that your current lender might not offer.
Is a split loan better than fixing or staying variable when upgrading?
A split loan lets you fix part of the loan to protect against rate rises while keeping part variable for flexibility with extra repayments or an offset account. This approach suits families who want some certainty without giving up all flexibility, especially if you're expecting a lump sum soon.
