While taking up better life opportunities abroad, you do not want your mortgage to get in your way.
If you’re a soon-to-be expat, there are a few things you need to consider regarding your mortgage.
The biggest question is whether to keep the property or sell it.
Selling Your Property While Moving Abroad
Selling your property and using the proceeds to pay off your home loan is one way of dealing with the issue. However, this is not always the best solution from a financial perspective.
If you decide to sell your mortgaged property before the expiry of its loan term, there are certain expenses you need to cover from your own pocket. These include:
- Break costs if you are on a fixed-rate home loan term
- Discharge fee when you pay off the loan
- Capital gains tax on any profit made
- Legal fees
- Real-estate agent fees
Note that if you are on a variable-rate loan settled before 2011, you may also have to pay an early repayment fee. All of these costs can eat into any property equity you have built up, leaving you with less money once you pay off the mortgage.
Keeping Your Mortgage While You Move Abroad
If you keep your mortgage, you should decide whether to keep it as it is, or restructure it. If you decide to restructure, there are many different options. Here is a look at some of the various choices and what they involve.
Not Making Any Changes To The Mortgage
If you decide to keep your property, you’ll need to inform your lender of your plans. They may ask for proof that you’re still living in Australia at the time, such as a recent utility bill.
As long as you do not plan on making any changes to your mortgage, nothing will change; you will not get reassessed. Your repayments remain the same, so you need to figure out a way to make them from abroad. It could include setting up a direct debit from your foreign bank account or asking a friend or family member to make the repayments for you.
Keep in mind that while some banks accept all types of currencies for repayments, some banks accept only certain currencies listed under their policy.
Restructuring Your Mortgage
You may want to consider restructuring your mortgage if you plan on keeping the property while you’re away. This involves changing the terms of your mortgage, such as the interest rate, repayment amount, or loan term.
Restructuring your mortgage could save and even make you money in the long run.
Below is a list of options for managing your mortgage/property if you plan to move abroad.
1. Refinance Your Property Into An Investment Property
Converting your owner-occupier home loan into an investment loan has several benefits. The first and the most obvious benefit is that you can make money from renting your property. The rental income could easily cover your repayments, then you don’t have to worry about making international money transfers every month, and you could also make a profit.
Another advantage of turning your property into an investment property is that you can claim the plant and equipment fixtures’ depreciation. This can amount to a significant tax deduction at the end of the financial year, which can help offset any capital gains tax liabilities.
You can also claim other tax deductions on the expenses associated with owning an investment property, such as interest payments, council rates, and repairs and maintenance costs.
2. Cash-Out Equity
If you have built up equity in your property, you may want to consider cashing out some of it before you leave.
You can cash out equity when you refinance your mortgage for a higher loan amount than what you currently owe and then use the difference to receive a lump sum of cash.
You can use this cash to pay off debts, make home improvements, or for any other purpose (perhaps to settle abroad). Remember that you will be starting from scratch in terms of equity, as the lump sum is not technically considered an investment.
3. Switch To Interest-Only Payments
An interest-only loan means that during the specified period, you pay only the interest charges on your loan. You don’t need to make any repayments towards the principal loan amount.
Switching to an interest-only repayment plan for some years can free up much-needed cash, especially when you need to adjust to a new job and country.
4. Take A Repayment Holiday
A repayment holiday is when you agree with your lender to stop making repayments on your loan temporarily. This could be for a period of three to six months or even longer in some cases.
Be sure to apply for a repayment holiday before you leave the country. That way, you can have peace of mind, knowing that your repayments are taken care of while you’re away.
Keep in mind that interest will still accrue during the repayment holiday period, so you will need to factor this into your budget later.
Can You Restructure Your Mortgage After Moving Abroad?
Yes, you can restructure your mortgage once you move out of the country. But if you are someone who has had their mortgage since before planning to move out, it is better to restructure your mortgage before you leave.
Once you move abroad, for any significant restructuring you want on your mortgage, you will be reassessed, regardless of whether you are sticking with your current lender or refinancing with a new one.
As an expat, you will have different assessment metrics to pass and will also have to spend more from your own pocket.
Restructuring your loan as an expat also means that you will:
- Face a 20% deduction in income while calculating your borrowing power
- Have to pay a higher interest rate
- Have to accept overtime income, bonuses, or commissions income shading
- Not get to refinance with a major lender if you are self-employed
We Can Help With Your Home Loan Transition
If you are an existing client looking to restructure your mortgage before moving abroad, you may directly contact our mortgage broker with whom you worked previously, or call us at 1300 889 743, so our post-settlement staff can assist you with your requirements.
If you are someone looking to enquire about refinancing through us, call us on 1300 889 743 or enquire online, and we can discuss your situation with you.