Upgrading Your Family Home: What Not to Forget

When your current home no longer works for your family, the finance side of upgrading involves more than finding a lower rate.

You're weighing up whether to sell first or buy first, how to access equity without over-leveraging, and which loan structure suits both your current income and where your practice is heading. The decisions you make now shape your borrowing capacity for years, particularly if you're planning to hold your current property as an investment or need to coordinate settlement timing.

Selling First or Buying First: The Finance Implications

Buying before you sell gives you time to find the right property without rushing, but it means carrying two mortgages temporarily and proving to a lender that you can service both. Selling first removes that servicing strain and gives you certainty on your deposit, but you're then under pressure to secure your next home quickly or arrange interim accommodation.

Consider a general dentist who owns a unit and wants to upgrade to a house closer to their practice. If they buy first, the lender assesses their income against both the existing mortgage and the new loan, which can reduce how much they can borrow. If they sell first, the full sale proceeds become their deposit and only the new loan is assessed, but they may need to move twice or negotiate a longer settlement on their sale.

Some lenders offer bridging finance to cover the gap between purchase and sale, but the interest cost on two properties plus bridging fees can add up quickly if the sale takes longer than expected. Another option is to negotiate an extended settlement on your purchase to give you time to sell, though that depends on the seller's timeline. If you're confident your property will sell within a specific timeframe and your income comfortably services both loans, buying first can work. If your borrowing capacity is already stretched or the market is slower, selling first is often the lower-risk path.

Using Equity Without Over-Leveraging

If you have equity in your current home, you can use it as part or all of your deposit for the next property. The amount you can access depends on your current loan balance and what the lender values your property at.

Lenders typically allow you to borrow up to 80% of your property's value without paying Lenders Mortgage Insurance. If your home is worth $600,000 and you owe $300,000, you have $180,000 in usable equity at that threshold. Going beyond 80% is possible, but it triggers LMI, which adds to your upfront or capitalised costs. Some lenders offer LMI waivers for dentists at higher loan-to-value ratios, which can change the equation if you want to access more equity without the additional premium.

Using all available equity to maximise your deposit sounds appealing, but it also increases your overall debt and the amount of interest you pay across both loans. If you plan to keep your current property as an investment, the rent may not fully cover the mortgage, which reduces your disposable income and affects how much you can borrow for the upgrade. Running the numbers on both scenarios before committing helps you understand the long-term cost.

Structuring the Loan for a Property You're Keeping

If you're holding your current home as an investment, the way you structure both loans matters for tax and flexibility. Investment loan interest is generally tax-deductible, while owner-occupied loan interest is not, so keeping the two loans separate and ensuring you don't contaminate the investment loan with personal expenses is important.

A common mistake is redrawing from the investment loan to fund the new home deposit. That redraw is no longer being used for investment purposes, which can reduce your deductible interest. Instead, consider setting up a separate loan or split for the deposit drawdown, or use an offset account linked to your owner-occupied loan to preserve the deductibility on the investment side.

You'll also want to think about the loan type for each property. A variable rate on the investment loan gives you flexibility to make extra repayments or offset rental income, while a fixed rate on part of your owner-occupied loan can provide repayment certainty as you settle into the new property. Some dentists prefer a split loan structure on the new home, fixing a portion for stability and keeping the rest variable for offset access and prepayment options.

Timing Settlement and Managing Two Properties

Coordinating settlement on your sale and purchase requires careful timing, particularly if you're relying on the sale proceeds to complete the purchase. A standard settlement period is 30 to 60 days, but you can negotiate longer or shorter depending on what works for both parties.

In a scenario where a dentist secures their new home with a 60-day settlement and lists their current property shortly after, they have two months to find a buyer and settle in time to use those funds. If the sale completes before the purchase, the proceeds can sit in an offset account linked to the existing loan to reduce interest until settlement day. If the sale is delayed, they may need to arrange temporary finance or extend the settlement on the purchase, which requires the seller's agreement and sometimes a penalty.

Some buyers negotiate a rent-back arrangement with the purchaser of their current home, allowing them to stay in the property for a few weeks after settlement while they move into the new one. This can smooth out the logistics, but it also adds a layer of complexity and depends on the buyer's willingness to accommodate it.

What Lenders Focus on When You're Upgrading

Lenders assess your upgrade application differently depending on whether you're selling or keeping your current property. If you're selling, they want evidence of a signed contract or at least a strong indication that the property is listed and likely to sell within the settlement period. If you're keeping it, they'll assess the rental income and apply a haircut, usually around 20%, to account for vacancies and maintenance.

Your income as a dentist generally works in your favour, particularly if you're a permanent employee or have consistent earnings from a practice you own. Self-employed dentists may need to provide recent tax returns or financial statements, but many lenders familiar with the dental profession understand the income structure and don't require the same level of documentation as other self-employed borrowers.

Debt servicing is the other key factor. Lenders add up all your ongoing commitments, including the new mortgage, the existing mortgage if you're keeping it, any practice loans, car loans, and credit card limits, then assess whether your income can cover those plus living expenses. Reducing unnecessary debt or lowering credit card limits before you apply can improve your borrowing capacity without changing your income.

Choosing the Right Loan Features for Your Next Property

The loan features that matter most depend on how you plan to manage the new mortgage and whether your income is likely to fluctuate. An offset account is useful if you want to park rental income, sale proceeds, or practice income and reduce interest without locking funds into the loan. Redraw facilities offer similar benefits but with less flexibility, as some lenders restrict how often you can access redrawn funds.

Portability is worth considering if you think you might move again within a few years. A portable loan lets you transfer your existing loan to a new property without breaking a fixed rate or reapplying, though not all lenders offer this feature. If you're planning to renovate after you move in, a loan with a redraw or an additional drawdown facility gives you access to equity without refinancing.

Rate discounts for professionals are often available to dentists, either through specific lender packages or through negotiation. The discount typically ranges from 0.10% to 0.70% depending on the lender, your loan amount, and your deposit size. It's not always advertised, so it's worth asking what's available when you compare loan products.

Call one of our team or book an appointment at a time that works for you to discuss how to structure your upgrade around your current equity, income, and timeline.

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