Mortgages

Buying A House Abroad – What You Need to Know

If you’re thinking about purchasing real estate in a foreign country you’re probably either looking to get your dream holiday home or just an investment property that’s got global potential.

That said, it’s not exactly an easy process. Some countries are worse than others, but depending on where you go it’s not always so simple – buying property overseas comes with unique challenges that don’t apply back home.

So, we’ve put together a few tips to help you make informed decisions when buying a house abroad.

Why Buy Property Overseas?

For both lifestyle and financial reasons, overseas real estate definitely has its benefits. Owning a house in Bali or a condo in Spain is going to be gorgeous for obvious reasons. And at the same time, international property is a class way of diversifying your portfolio as you’re spreading the risk across countries.

Even if the Australian market slows or property values dip, an overseas asset might still be going strong. Plus, some overseas markets offer lower entry prices or higher rental yields than expensive Aussie cities which means you’ve got plenty of opportunities for healthy rental income from tourists or expats.

Investing abroad also lets you tap into growth in developing markets. While Australia’s housing is among the world’s priciest, some overseas markets are much more affordable. Just remember, a rock-bottom price doesn’t guarantee a profit – a cheap home in a struggling economy might stay cheap if demand never rises. Needless to say, thorough research is essential before you buy in an unfamiliar market.

Picking Your Location (and Knowing the Rules)

You’ve obviously got to find some kind of balance between where you’d like to live and how practical it actually is to live there – from Portugal to New Zealand. So before you fall in love with a location, check the fine print: can a foreigner even buy there?

Property laws vary widely. Some countries make it easy – the USA and UK, for example, place few restrictions on foreign buyers. Others do the opposite: Iceland, for instance, only lets citizens or residents buy property, and Canada has recently barred foreign homebuyers. Always verify what foreign investment is permitted (or forbidden) in your country of choice.

New Zealand is a special case. The Kiwis restrict most foreigners from buying homes, but thanks to Trans-Tasman agreements, Australians are treated like locals when purchasing residential property. That makes NZ one of the easiest markets for Aussies to enter. And it’s naturally got a bit of that familiarity. Just don’t assume it’s cheap – New Zealand’s median property price in 2024 was actually higher than Australia’s.

In other parts of the world, don’t be surprised when you see how many unique and bureaucratic rules there are. Bali is a long-time favourite for Australians, but Indonesian law doesn’t allow foreigners to own freehold land.

Foreigners can only buy Bali property under leasehold or “right-to-use” arrangements – freehold titles are reserved for actual Indonesian citizens. That hasn’t stopped people from flocking in; post-pandemic, Bali’s property market has boomed since foreign buyers bought up loads of the villas in hotspots like Seminyak and Ubud.

In contrast, foreigners can buy freely throughout much of Europe, although you’ll still navigate a different legal system (often involving notaries and translated documents).

Know the local rules inside out before you commit. It’s wise to get advice from local real estate agents or buyers agents who know the language and process. Having a trusted expert on the ground can save you from costly mistakes in a foreign market.

Financing and Currency Considerations

Financing an overseas property can be trickier than getting a loan at home. Since most Australian banks won’t accept an overseas property as collateral for a mortgage, one common solution is to utilise some of the equity in your Australian home so you can fund the purchase.

On the other hand, some overseas lenders may finance your purchase, but be prepared for stricter terms. That could be larger down payments or higher interest rates for foreign borrowers.

Buying in a foreign currency also means you’ve got to worry about exchange rates. A weaker Aussie dollar can make your purchase pricier or shrink returns when you convert the rent back to AUD. You could definitely soften this impact a bit by borrowing or just keeping the funds in the local currency, but always budget a buffer for currency swings.

Handling Taxes and Legal Hurdles

It’s critical that you understand some of the tax implications and legal processes that are involved when purchasing property abroad. Many countries charge stamp duties or transfer taxes on real estate purchases, plus ongoing property taxes. Some even add surcharges for foreign buyers, so you naturally need to budget for some of these extra costs.

Then consider Australian taxes. If your overseas home is an investment property, the ATO will tax your foreign rental income just like rent from an Australian property (with credits for any tax paid overseas).

But if the property runs at a loss, you may be able to deduct it under Australia’s negative gearing rules, and any capital gain on sale will be taxed back home. In short, the tax man wants his cut whether your place is in Melbourne or Madrid.

And then on the legal side you also need to be prepared for a different buying process. You might need to:

Hire a local lawyer or notary
Get documents translated
Obtain special ID numbers to buy as a foreigner

Tenant and property laws can also differ quite a lot. For example, some European cities cap rent increases and limit your returns on rental properties. So just stay aware of the local regulations so you don’t get caught off guard.

Managing Your Overseas Property

Finally, owning a home abroad means becoming a long-distance landlord or caretaker. Managing maintenance and tenants from afar is challenging – even a simple leaky pipe can turn into a major hassle when you’re thousands of kilometres away.

That’s why it’s so common to see people hire a local property manager, especially if you plan to use the home as a rental property. A good manager can handle tenants and repairs, but you’ll need to budget for their fee and trust them with your asset.

And then even with their help you could still have a bunch of random emergencies from a different time zone that you’d need to deal with.

Try to visit the property (or have someone inspect it) before you fully commit. Then after the purchase, it doesn’t hurt to visit it occasionally to ensure the home is being maintained as expected.

Stay in regular contact with your property manager or neighbours so you hear about any issues quickly.

How Upscore Can Help

One way to make your journey easier is to get your finances in order upfront. Upscore’s Finance Passport can streamline the mortgage process when you buy property abroad. It lets you use your Australian financial history to access home loan offers in multiple countries.

You can apply for non-resident mortgages online and compare rates from various lenders – all before you even hop on a plane and for free!

How to Buy Property in France as a Non-Resident

Wondering how to buy property in France as a non-resident? Australian citizens (or any other non-residents) don’t actually face any special restrictions – you can purchase French real estate with essentially the same rights as French citizens.

So foreign buyers can have full property ownership rights and can invest in French real estate just as locals do. That said, being a non EU citizen does mean you have a few extra steps you need to think about, like visa rules for long stays and potential differences in the mortgage process.

But when it comes to the buying itself, France welcomes international purchasers, and the process is broadly similar for locals and foreigners. Let’s look at this in a bit more detail:

The Process of Purchasing Property in France

There’s a clear property purchase process in France for non-residents, but it will probably feel a bit different from what you’re used to in Australia. Here’s a walk-through of the main stages, from hunting for a home to completing the sale:

Finding The Right Property And Making An Offer

Most people start their search online and look through French property portals and estate agency websites. Once you have a shortlist, you’ll want to get in touch with a local real estate agent (an agent immobilier) early on.

France’s realtors not only help you locate suitable homes, but also guide you through the buying steps, which is invaluable if you don’t speak French fluently. In fact, because the process will be conducted in French and involves local paperwork, a bilingual agent who’s used to foreign buyers is almost a necessity since it makes your life so much easier.

Your agent will arrange viewings and, when you’ve found “the one,” help you negotiate the terms and property price with the seller. The negotiation process in France is similar to elsewhere: you and the seller haggle (often via the agents) until you agree on a purchase price that works for both parties.

And don’t be afraid to offer below the asking price – in a cooling market, sellers may be more flexible. Once a price is agreed, things start moving quickly into the contract stage.

Signing The Initial Contract (Compromis De Vent)

The first major document is the initial contract known as the Compromis de Vente. This is essentially the preliminary sales agreement between buyer and seller. It lays out things like:

The agreed price
Property details
Any conditions (for example, if the sale is contingent on you getting a mortgage)

You’ll usually sign this initial contract with a French notary (notaire) there or sometimes just at the estate agency. French law builds in a 10-day cooling-off period after signing. This is your last chance to withdraw from the contract without any kind of penalty.

So after those 10 days, the contract now becomes binding and you’ll need to pay the deposit, which is usually around 10% of the purchase price. This deposit will be held in escrow (often by the notary or agency) until it’s been completed.

The Compromis de Vente is one of the main milestones of the whole agreement as it means both parties are committed to the deal (with some escape clauses for things like mortgage denial) and kicks off the due diligence process.

Due Diligence And Paperwork

So there are usually a few months of waiting before final completion after the Compromis. And during this period, various checks and paperwork are completed. As the buyer, you’ll want to ensure the property is in good order and that there are no legal surprises.

French sellers are required to provide a Dossier de Diagnostic Technique (DDT) – a pack of official property surveys and certificates covering everything from lead paint and asbestos to termites and energy efficiency. This dossier de diagnostic technique is there to inform you about the property’s condition and any issue; it’s often reviewed with the help of your lawyer or agent.

Your notary will also conduct title searches to verify the seller has clear ownership and to uncover any mortgages or easements on the property. And if any conditions were stipulated (such as obtaining planning permission or a mortgage approval), those also need to be sorted during this phase.

It’s generally also a good idea to hire your own surveyor if you want a more detailed inspection, especially for older homes – remember, French houses can be centuries old, so an expert look at the structure and roof can do you a favour later.

This is the time to ask questions and get documents translated if you don’t understand them – French bureaucracy can be paperwork-heavy.

Final Contract And Completion

The last step is signing the Acte de Vente (also called the acte authentique), which is basically just the final deed of sale. This is the moment you actually become the owner of the property.

Completion usually takes place at the notary’s office. The notary (who is a public official responsible for ensuring the transaction is legally sound) will read through the contract aloud – traditionally in French, but your agent or translator can help if needed – and then both you and the seller sign it.

At this stage, you will pay the remaining balance of the purchase price to the seller, as well as settling all the purchase costs and notary fees. It’s also fairly common for foreign buyers to grant the notary a power of attorney to sign on their behalf if they can’t be present in person, so don’t worry if you’re still in Australia on the day. Then once everything is signed and funds are transferred, you get the keys – congratulations!

Taxes, Fees And Registration

In France, the buyer generally needs to pay the majority of the closing costs. These include the notaire’s fees and associated taxes (roughly 7-8% of the purchase price for an older property), plus any legal fees for your own lawyer (if separate) and maybe even a small estate agency fee if it wasn’t already covered in the price.

The notary fees you pay actually mostly go toward government duties and taxes so only a small portion of that is the notary’s true fee. Additionally, you’ll pay a one-time land registration tax (it’s usually bundled within that 7-8%) to register the change of ownership.

The notary handles the land registry formalities on your behalf – after the sale, they will file the deed with the French Land Registry (the cadastre) to record you as the new owner. A few months later, you’ll receive an official title document proving your property ownership has been registered!

All of these costs are typically rolled into the final closing statement, so be prepared for your final payment to include more than just the agreed house price. We’d generally recommend that you budget for around 10% on top of the purchase price to cover taxes and fees to be on the safe side.

How Upscore Can Help

Upscore’s Finance Passport can help you show your financial history to overseas lenders, which makes it way easier to explore mortgage options as a non-resident. It’s a free service and lets you compare multiple lenders so you know you’re getting the best deal.

What Is A Tracker Mortgage?

Ever heard the term “tracker mortgage” and wondered what it means? If you’re an Australian homebuyer or homeowner, you might not be too familiar with this concept, since local lenders do not commonly offset it.

So in simple terms – what is a tracker mortgage? It’s a home loan with a variable interest rate that moves in line with a specific benchmark (which is usually an official cash rate that the central bank sets).

But the main difference here is that, unlike a normal variable loan where the bank can change rates whenever, a tracker mortgage follows the official rate exactly. For instance, if interest rates rise, a tracker loan’s rate goes up by the same amount – and if interest rates fall, the loan’s rate drops equally.

How Tracker Mortgages Work

A tracker mortgage is essentially a loan where your interest rate “tracks” an external reference rate (like the Reserve Bank of Australia’s cash rate) with a fixed margin on top. So this just means that the rate on your loan will either rise or fall in sync with that benchmark.

For example, Auswide Bank introduced a tracker home loan quite a while ago in 2016 that was set at 3.99% p.a., and it even had a floor – the rate couldn’t drop below a certain figure even if the RBA cash rate fell to zero. The big benefit of this setup is transparency: whenever the RBA makes a move, your mortgage rate adjusts in step automatically.

Tracker Mortgages in Australia vs. the UK

Tracker mortgages are popular in some other countries, especially the UK. In Britain, a tracker mortgage usually follows the Bank of England’s base rate (their equivalent of the RBA cash rate) plus a set margin.

Most UK tracker deals tend to last only for a certain term (commonly two or five years), after which the mortgage interest rate switches to the lender’s standard variable rate (SVR).

In Australia, by contrast, tracker mortgages have been almost unheard of. As of 2016, such products were not offered by any of the major banks here. A few smaller lenders have tried them – for instance, that previous example we just gave of Auswide Bank launching a tracker loan – but they’re still very niche.

Big banks have argued that there isn’t much demand and that trackers could be risky or costly to offer (since the bank must pass on all rate cuts). And to compensate, lenders often set the margin higher on a tracker, so the tracker rate mortgage might not even always be the cheapest deal around.

Tracker vs. Standard Variable vs. Fixed Rates

How does a tracker mortgage compare to other home loan types that most Australians go for?

Standard Variable Rate Loans

This is the most typical Aussie home loan. The interest rate can move up or down, but it’s set at the lender’s discretion. Standard variable rates usually just follow the RBA’s movements, but banks often pass on changes only partially (and sometimes make independent moves).

So put simply, a standard variable loan gives the bank flexibility to set rates as it wishes, whereas a tracker guarantees your rate will mirror an external index exactly.

Fixed Rate Loans

A fixed rate mortgage locks in your interest rate for a set period (such as, 2, 3 or 5 years). During that time your rate won’t change – you’re shielded if rates rise, but you won’t benefit if rates fall.

Fixed rate mortgage deals definitely give you the more stable repayment option of the two types of loans we’re talking about right now. The downside is that there’s less flexibility: exiting a fixed rate deal early usually incurs an early repayment charge (a penalty fee).

Tracker loans, being variable, usually don’t have such penalties, but of course their rate can change at any time. Ultimately, choosing between a fixed or tracker comes down to whether you value stability or the chance to take advantage of rate drops. Or if you can even find a tracker loan in Australia.

Things to Watch Out For with Tracker Mortgages

If you’re considering a tracker mortgagee, keep a few caveats in mind. First, pay attention to the margin above the official rate – if it’s high, the loan might not actually even be a bargain. A tracker isn’t automatically the cheapest option just because it follows the RBA rate; a large margin could make the interest cost higher than some regular variable loans.

Second, check if there’s a floor rate. Some tracker mortgages set a minimum interest rate for the loan. For example, a lender might specify that the rate won’t fall below 2.50%, so even if the RBA cash rate dropped to 0%, your interest rate could not go below that floor. A floor protects the lender but limits how low your rate can go.

Also, consider the loan features. Some tracker loans lack extras like offset accounts, though they may still allow extra repayments or redraws. So just make sure you can live without any features the loan doesn’t include.

Finally, we’d always recommend that you check for any fees. Trackers generally don’t impose big break costs like fixed loans do, but it’s worth confirming that there’s no hidden exit fee or early repayment charge in the contract.

How Rate Movements Affect Your Payments

Again, the main appeal of a tracker is that your monthly mortgage payments respond instantly to interest rate changes. If the RBA moves the cash rate, your lender will adjust your rate by the same amount immediately.

If rates go down, your mortgage repayments will get smaller. If rates go up, your payments will increase by the same margin. This is great when rates are falling, because you see savings straight away. But obviously the inverse of this means it can sting when rates are rising – you need to be prepared for the higher costs.

And remember, the RBA typically meets monthly (except January), so your rate could change several times a year. Be sure to budget with that potential volatility in mind.

Fixed or Tracker Rate: Which Should You Choose?

So, should you go for a fixed or tracker rate? If you prefer monthly payments that don’t change, a fixed rate is probably going to suit you better. If instead you want to ride the interest rate waves and benefit from any cuts, a tracker could be better.

For example, if you plan to sell or refinance in a couple of years, a tracker gives you more flexibility since there’s no break fee. A fixed rate could tie you down unless you pay an early repayment charge to exit early.

Just keep in mind through all this that you might not even find a reputable tracker loan to even invest in, but this is the logic you’d apply if you were applying for one in England, for instance, where these loans are a lot more common.

How Upscore Can Help

Upscore’s Finance Passport lets you easily compare mortgage options side by side for free, which makes the search process much simpler. If you’re exploring home loans, make sure you give it a try and find a deal that suits your needs!

Get your Finance Passport now!

What Is a Lifetime Mortgage?

In simple terms, a lifetime mortgage is a loan that lets you release equity – that is, access some of the value of your home as cash – while you continue living in it. It’s essentially a type of equity release product that’s quite popular in the UK, and in Australia it’s very similar to what’s known as a reverse mortgage.

You usually need to be around retirement age (typically 60 or older) and own your home outright (or have only a very small existing mortgage) to qualify. The cash you get is yours to use as you wish, and importantly, it’s tax-free – since it’s money you’re borrowing and not just income earned.

How It Works

So how does it work? With a lifetime mortgage, you’re borrowing money against the value of your home, but unlike a traditional mortgage there are usually no monthly repayments required.

That’s right – you typically don’t even have to pay back a cent or make any interest payments while you’re still living in the home. Instead, the interest accrues (piles up) on the loan over time and any unpaid interest just gets added to the loan balance.

The loan, plus the rolled-up interest, is only repaid later – usually when you either:

Sell the property
Move into long-term care
Pass away and your estate sells the house

At that point, the sale proceeds settle the debt. After the loan and interest are paid off, any money there that’s left over from the sale goes to you or your beneficiaries.

The good news here is that you still retain full ownership of your home throughout; the loan is just secured against the property as collateral. In other words, you get to stay in your home for life, and the lender’s security is that eventually the house will be sold to repay what you owe.

Lump Sum vs Drawdown Equity Release

Lifetime mortgages also have a bit of flexibility in how you take the cash. You can usually receive the funds as a lump sum all at once, or just set up a drawdown facility to release equity gradually in smaller chunks as needed.

Some people are always going to take the lump sum option to, say, renovate their home or help the kids out early with an inheritance, but you’re generally going to see people opt for a regular supplemental income to boost their retirement lifestyle.

Either way, you’re tapping into your home’s value. And because you’re only charged interest on the amount you’ve actually taken, a drawdown (taking money in stages) can save a good amount on interest compared to taking a big lump sum upfront.

Interest and Loan Growth

Now, you might be wondering: what’s the catch? A lifetime mortgage (or reverse mortgage) isn’t exactly free money – it’s still just a loan with interest. Since you aren’t making monthly repayments, the interest will keep compounding for as long as the loan runs. So that means the amount you owe grows over time.

Also, the interest rates on lifetime mortgages are usually a bit higher than the rates on regular home loans.

Fixed Interest Rate for Life

Oftentimes, the rate is a fixed interest rate that’s set for life – this gives you some certainty about how the interest adds up, but it tends to be a bit more than a normal variable mortgage rate.

Over, say, 10 or 20 years, a higher rate and compounding interest can significantly reduce the equity you have left in the home. So in practical terms, that means there might be a bit less value left for you or your family when the house is eventually sold. Go into this realising it’s a trade-off and that you’re getting cash now in exchange for giving up some of the home’s value later.

Your Protections

The good news is that any reputable lifetime mortgage comes with a negative equity guarantee. This feature has actually been a legal requirement for reverse mortgages in Australia since 2012, and it ensures that you (or your estate) can never owe more than your home’s value.

In other words, even if the property market dips or you live a very long time and the interest just keeps growing, neither you nor your heirs will be lumbered with a debt that’s way beyond the value of the house.

And when the house is sold, if by some chance the sale price doesn’t cover the entire loan and interest, the lender must absorb the difference – they can’t ask your family or estate to pay the rest. So you do have a bit of peace of mind there.

On the other hand, if the house sells for more than what’s owed, the extra proceeds still go to your estate. Also, you’re generally protected from ever being forced out of your home – as long as you uphold basic obligations like keeping the house insured and in reasonable condition, you have the right to stay there for life or until you choose to leave.

Inheritance and Estate Value

Try to also think about the impact on what you leave behind. Because the loan will eat into your home equity, there will be less value in the property to pass on to your heirs. Some people out there don’t mind using some of their kids’ inheritance to fund a more comfortable retirement (after all, it’s your money tied up in the house), but it’s something you might obviously want to think about.

Australia doesn’t have inheritance tax, but it will still reduce the net value of your estate. However, remember that your children or beneficiaries will only miss out if the loan plus interest ends up consuming most of the house value.

If your home continues to rise in property value, it might still sell for more than the loan amount, and any surplus goes to your family. Many lifetime mortgages also allow you to protect a portion of your property’s value as a guaranteed inheritance (this can be arranged at the start if you wish, by limiting how much you borrow).

So just find a balance you’re comfortable with between enjoying your money now versus leaving it for later.

Early Repayment Options and Charges

You might also wonder, can you pay the loan early if your plans change? The answer is usually yes, you can choose to repay a lifetime mortgage early by selling the house or using other funds, but there could be early repayment charges depending on your contract.

These loans are designed to last a lifetime (hence the name), so lenders sometimes charge a fee if you break the agreement in the early years. And that’s why it’s so important to check the terms.

Some products are more flexible and might not penalise early payoff after a certain period, or they may let you make partial repayments without full closure. Additionally, some homeowners opt to pay the interest voluntarily (say, monthly or yearly) even though they don’t have to – this way, they keep the debt from snowballing too much.

That’s optional, but it can be a smart move if you can afford it, because it means you’ll be preserving more equity in the long run. Overall, you have options to manage the loan if your situation evolves, but always be clear on any conditions.

How Upscore Can Help

Upscore’s Finance Passport helps you explore your borrowing options – internationally or locally – for free and shows how your financial background could get you a loan.

Get started with Upscore Today!

Moving Abroad: Expectations vs. Reality

There are plenty of people who move to Australia from overseas, but have you ever thought about leaving Australia to live somewhere else in the world? You definitely wouldn’t be alone – over half a million Australians now live abroad.

But how exactly does that dream of moving abroad compare with reality? Let’s unpack some of the more common assumptions Aussies have about expat life and see what really happens once the plane lands and you’re left to your own devices.

Cost of Living: Expecting Cheap, Meeting Reality

Expectation: Life will be cheaper overseas – no more “Australia tax” on everything.

Reality: It’s a bit mixed and definitely isn’t always the case. Australia is indeed expensive, no one is denying that. But we also have high wages to match.

Move to a place with lower salaries and, even if groceries or rent are cheaper, you might feel a pinch in a few other ways. For instance, Australia’s overall cost of living is about 10% lower than London’s, so an Aussie arriving in the UK may be shocked when a pub meal or flat rental costs more than it did back home.

Needless to say, things definitely get a bit more affordable when you go further up north, but even cities like Manchester have incredibly high costs of living. Obviously, this is assuming that you’re planning to emigrate to an English speaking country, which is why we’re focusing on England at the moment.

On the other hand, some things definitely are a bit cheaper abroad – Brits usually get lower supermarket prices than Australians (thanks to the shorter distance for imports around Europe, for example), and many Asian countries have bargains when it comes to street food and transport.

But in short, “cheap” and “expensive” will flip around depending on where you go. As a result, you’re just going to have to learn how to adjust your budgets.

Cultural Adjustment: More Than a Holiday

Expectation: Moving abroad will feel like a permanent vacation. Same language and similar culture means an easy transition.

Reality: Once the honeymoon phase passes, daily life overseas has the same chores and challenges as life at home – just in a different setting. Obviously, it’s still a fairly exciting prospect to move abroad, but you’re not going to be able to run from your problems entirely. You’ll still have to commute to work and pay your bills, only now you’re figuring it all out in unfamiliar surroundings.

Even in another English-speaking country, you’ll stumble over little differences. Australians are famously informal, which could definitely raise a few eyebrows in more emotionally reserved cultures like in England.

Adapting basically just means letting go of the “holiday” mindset and trying to embrace a new normal. It’s not our goal to sound too pessimistic and cynical about this whole journey. The good news is you’ll also discover new delights – perhaps a local bakery you love or a new sport you take up – that become part of your routine. You just need to appreciate that it’s not a holiday; it’s just everyday life, but with different buildings and weather.

Housing & Space: A Reality Check

Expectation: Housing will be easier or cheaper overseas. Maybe you’ll get a bigger place for less than you paid in Sydney.

Reality: Think again. Australian homes are actually among some of the world’s largest – on average about three times the size of UK homes – so moving into a London flat or Tokyo studio can be a fairly big shock to your system.

You might swap a backyard and garage for a tiny balcony (or no outdoor space at all, which is fairly common in England). Even if property prices abroad seem lower on paper, exploring the market as an outsider isn’t exactly simple – especially if you’re going to a non-English speaking country.

Renting can come with unfamiliar rules (like needing a local guarantor or extra deposits), and buying property is notoriously a frustratingly bureaucratic process. Be prepared for plenty of paperwork – translating documents and proving your financial credentials in a new system – to get a mortgage approved overseas.

It’s all doable, but it certainly isn’t the effortless process you might expect. You’re definitely going to have to be a bit patient while you’re hunting for that new home away from home.

Community & Friends: Starting from Scratch

Expectation: You’ll instantly make friends and feel at home, and locals will love your Aussie charm.

Reality: Building a social circle from scratch is harder than it looks. In the first weeks abroad you might feel like the odd one out – your lifelong mates and family are thousands of kilometres away, and you might be friendly with co-workers or neighbours but probably aren’t going to feel immediately close.

The Australian accent, for better or for worse, is definitely somewhat of an ice-breaker, but turning small talk into real friendship is something that takes time. We all take for granted how easy it was to make friends when we were back in school; it isn’t always as easy when you’re an adult.

Many expats find themselves seeking out other Australians or at least English speakers for a bit of familiarity. There’s no shame in that – joining an expat meetup or social group can quickly connect you with people who understand what you’re going through.

Over time, you will break into the local scene too, especially as you learn the culture (and perhaps the language if you’re moving somewhere nearby in Asia, for example). Again, the key is just putting yourself out there and being patient.

Bureaucracy & Healthcare

Expectation: Paperwork will be straightforward, and my health needs will be covered just like in Australia.

Reality: Every country has its own heap of rules and admin, and you often don’t realise how smooth things are at home until you’re dealing with a foreign bureaucracy. Setting up bank accounts or driver’s licences can turn out to be a whole ordeal.

Some places are infamous for red tape – and often for good reason. Even in efficient countries, you’ll likely come across forms and processes you’ve never heard of. And when it comes to healthcare, don’t assume you’re automatically covered. Australia’s Medicare safety net doesn’t travel with you.

While countries like the UK have public health systems with the NHS, the reciprocal healthcare agreement we have only covers basic emergency treatment and leaves out a lot. In many destinations (especially those without universal healthcare, like the United States), private health insurance is a must to avoid huge bills.

So, make sure you do your homework on local requirements and get proper coverage. You wouldn’t want to be massively out of pocket from some random illness or from a bit of paperwork.

How Upscore Can Help

If you’re an Australian planning an international move, one way to ease the transition is to get your finances sorted early. Upscore’s Finance Passport can help by using your Australian financial history to let you compare and even apply for mortgages in multiple countries online. It simplifies remote property financing across borders, so you can explore your options with far less hassle.

What Is a Mortgage in Principle?

We get how getting on the property ladder feels at first. It’s obviously exciting, but the sheer number of steps and unfamiliar terms is complicated and you’re not going to find it easy. Looking at property listings and dreaming about locations is the fun part, but it won’t be long until you hit a wall of financial jargon.

One of the first and most important terms you’ll encounter is the ‘mortgage in principle’. So, what is a mortgage in principle? Put simply, it’s essentially a document that makes you go from a window shopper into someone who is legitimately ready to purchase a home.

This first initial step is a bit complicated but you need to understand how it works to get far in the home buying experience.

So, throughout this article, we’re going to break down:

Exactly what it is
Why it matters so much
How you can get one
What Upscore can do to help

Understanding The Basics First

A mortgage in principle is known by a few different names, which definitely adds a bit to the confusion. You might hear it called an agreement in principle (AIP) or a decision in principle (DIP).

That said, the function is exactly the same regardless of what you may have heard it being called. It’s basically just a formal statement from a lender or bank that confirms that they are, in principle, willing to lend you a certain amount of money to buy a home.

It’s not a legally binding contract or a guaranteed mortgage offer or anything. Instead, it’s just a strong indication of your borrowing power that’s based on an initial look at your finances. A lender will take a look at your income and your spending before they run a preliminary credit check to arrive at a figure.

Now this figure isn’t just plucked out of thin air; it’s a calculated estimate that gives you a solid foundation for your property search. This document essentially serves as a mortgage promise, conditional on your financial circumstances remaining the same and the property you choose meeting the lender’s criteria.

Why It’s a Non-Negotiable First Step

Getting an agreement in principle before you start seriously viewing properties is always the best move – especially if the property you’re looking at is in high demand. When you walk into a viewing or speak to an estate agent with an AIP in hand, it changes the conversation entirely.

It shows you’ve done your homework and are a credible buyer rather than someone who’s just looking around and not really ready to commit to anything major. Sellers are more likely to take your offer seriously if they know you have the financial backing ready to go.

Even outside of the obvious credibility benefit, you’re also getting a realistic budget from having one of these. It’s easy to get swept up in looking at properties that are just outside your price range. But the whole point of an AIP is to ground your search in reality. It tells you precisely what you can afford, which means you can focus your energy on homes within your budget.

It’s not exactly uncommon to fall in love with a place you simply can’t secure a loan for, so this is a great way of avoiding that pain. It also prepares you for the next stage, the full mortgage application, because you’ve already completed the preliminary work.

How to Get Your Agreement in Principle

The process of applying for a mortgage in principle is thankfully quite straightforward and much quicker than the full application that comes later. Many lenders now allow you to apply online, so it’s way more convenient than how it used to be. You can also work directly with a mortgage broker, who can search the market for you and find the best potential deals for your circumstances.

To assess your financial situation, the lender will need some key information. You’ll typically be asked to provide details about your:

Income (including your salary and any other regular earnings
Existing loan repayments
Credit card debt
Household bolls
Recent bank statements
Payslips

The lender needs a clear picture of what comes in and what goes out each month to determine how much you can comfortably repay. This is all part of their initial credit checks to see if you’re a reliable borrower.

Will It Hurt My Rating?

This is one of the most common worries people have, and it’s fair enough. Will getting a mortgage in principle affect my credit score? The short answer is, usually not. Most lenders use what is called a soft credit check for an agreement in principle.

A soft credit check is a top-level review of your credit file that is not even visible to other lenders. It gives the lender the information they need without leaving a hard footprint on your report. It won’t affect your credit rating in a negative way.

This is a key difference from the full mortgage application later in the process, which does require the opposite: a ‘hard’ credit check. A hard check is a deep dive into your credit history and is recorded on your file. Having too many hard checks in a short period can sometimes lower your credit score, as it might look like you’re desperately seeking credit.

This is why the soft check for an AIP is so valuable; it allows you to shop around and get an idea of your borrowing power without any negative impact. You can confidently find out what you can borrow, and it won’t affect my credit score, which is a huge relief for many prospective buyers.

You Have Your AIP. Now What?

Once the lender has reviewed your information, they’ll issue your decision in principle. So, how long does a mortgage in principle last? Typically, an AIP is valid for a set period, which is usually around 90 days. This gives you a three-month window to find a property and have an offer accepted.

But make sure you keep in mind that the AIP is conditional. The final mortgage offer depends on a successful full application, where the lender will have to verify all your information again and conduct a valuation of the property you want to buy.

So that means that if your financial situation changes for the worse during those 90 days – for instance, if you change jobs or take out a large car loan – your lender could revise or even withdraw their offer.

Because of this, we’d always recommend that you try to maintain a stable financial profile from the moment you get your AIP to the day you get the keys. Your AIP is essentially your foot in the door for the serious part of the home buying process.

How Upscore Can Help

Is your dream home a little further afield than Australia? Many professionals and remote workers are now looking to invest in property in Europe or the UK.

Our Finance Passport connects you with multiple lenders across different countries – it can still help with Australian properties, too – and allows you to compare deals and apply remotely, all with personalised support.

Get started with your Finance Passport today!

Can You Get a Mortgage With Bad Credit?

So, can you get a mortgage with bad credit? Obviously, it’s everybody’s goal at some point to own a home, but we get that not everyone’s been blessed with a smooth financial life and may have made some poor financial decisions over the years that have resulted in bad credit.

Fortunately, the reality is that you can, but it usually takes a bit more effort and creativity since it’s definitely not going to be as easy.

In Australia, lenders will definitely pull your credit file when you apply for a home (mortgage), so they see everything:

Your credit scores
Any missed payments
Defaults
Any active credit cards or loans

Lenders literally use your credit rating to decide whether to lend you money. So, what are your options here?

Why Non-Bank Lenders and Mortgage Brokers Matter

Banks and building societies tend to shy away if your credit history is fairly rocky, which should be expected. That said, there are other home loan options available. For example, mortgage brokers and non-bank lenders often specialise in tougher cases where you can’t just go to a traditional bank.

Brokers can facilitate bad credit home loans by finding a lender you wouldn’t be able to reach on your own. These specialists essentially take a “real-life” view of your finances and look beyond the credit score.

So to put that simply, even with a poor credit score, a broker might find a lender willing to give you a shot if your situation has improved since back in the day and your other finances check out.

The Trade-Off: Higher Interest Rates and Risk Fees

Be prepared for a trade-off, though. Loans for borrowers with bad credit nearly always come with higher interest rates and extra fees. Bad credit home loans can be considerably more expensive than standard mortgages.

A bad-credit home loan is basically a normal mortgage but with higher interest and fees attached. The rates are usually somewhere around 2-6% above the big banks’ current rates for the same deal.

So in practice, that means if prime borrowers are getting, say, 5% on a loan, you might be looking at 7% or 8% with a home loan with bad credit. And don’t forget risk fees or special insurance: with a higher loan to value ratio (LVR), lenders might tack on a risk fee instead of the usual Lender’s Mortgage Insurance (LMI). For example, at 90% LVR (just a 10% deposit), you could face a 1.5% risk fee on top of the higher rate.

That’s clearly quite heavy, but on the positive side, these loans often require less paperwork. Standard banks might demand strict documentation, but bad-credit lenders sometimes relax some rules.

That said, less paperwork doesn’t exactly mean no requirements. You’ll still need a genuine deposit (often 10-20%) and proof of income and savings. Some lenders even let borrowers apply with only a 5% deposit on some products – essentially a 95% LVR – if the rest of their finances are solid. But more commonly, having at least 10-20% down will make lenders much happier.

Cleaning Up Your Financial History Before You Apply

Whichever lender or broker you use, get ready for scrutiny of your financial history. They’ll want to see that the mess in your credit past is behind you. So this means clean, “good” bank statements (no unexplained large overdrafts or missed bills), and that you’ve been paying any current loans or credit cards on time.

Lenders love to see that you pay your credit cards off in full each month and keep debts in check. Showing that you’ve consistently handled your day-to-day finances well can convince them that you’ve turned a corner.

Reduce Credit Inquiries

Also, remember that credit reports often include small marks that might surprise you – for example, applying for credit (like a credit card or car loan) will appear as a loan application enquiry on your report.

If you’ve applied around the time you apply for a mortgage, it could look like more risk. A credit enquiry (even a loan application) is listed on your credit report and stays there for years. So it pays to space out applications and clean up any old issues.

Before you start shopping for that bad-credit mortgage, take a moment to improve your standing where you can. Even a few on-time payments on a small personal loan can raise your profile. Fix any errors on your credit report (you have a right to get mistakes corrected for free).

And yes, start saving as much deposit as possible – a bigger deposit lowers your LVR and often results in better rates and fewer extra fees.

After Settlement: When and How to Refinance

If you do land a loan, plan to revisit it later. Many experts (and lenders themselves) suggest that you actually just grab the loan now and refinance once your credit score and financial situation improve.

For example, you could use a bad-credit loan to buy now, then, after you’ve built up savings and a perfect repayment record, refinance to a cheaper loan. That way you get into the market sooner, despite the extra cost, and then switch out of the premium price later.

Using Comparison Rates to See the Real Cost

And to compare all these pricier deals, make sure you always check the comparison rate. In Australia, lenders must quote both the interest rate and the comparison rate – the latter bundles in most fees.

The comparison rate is the “real cost” of the loan and is usually slightly higher than the headline rate. So if a broker shows you a 7% interest rate but a 7.8% comparison rate, that extra 0.8% is the fees and charges. Comparing loans by their comparison rates (rather than interest rates alone) is especially important when your credit score isn’t great, as it makes sure you’re not getting any shocks with hidden costs.

So, what’s the bottom line? Poor credit history or a poor credit score makes things harder, but doesn’t shut the door completely. A missed payment, default or bankruptcy will definitely raise eyebrows, but tons of Aussies have rebuilt after worse.

Just explain what the issues were (in your own mind and possibly to the lender) then show evidence that the situation is better now – perhaps through improved income or by paying all your billab ng time for the last year. Every lender is different. Some big banks might simply refuse, but many non-bank lenders will weigh these “explanations” seriously.

Why Non-Bank Lenders and Mortgage Brokers Matter

Get a broker involved, and you might find lenders who pre-vet your file upfront. In fact, brokers often offer free credit checks – they’ll spot things like bounced credit card payments or late utilities and suggest what to fix.

As mentioned earlier, some of those lenders typically only work through brokers and deliberately help borrowers who’ve had trouble.

If you have any family who can act as guarantors or co-signers, that’s also an option. A guarantor (say a parent) can let you borrow at a higher LVR without paying LMI, and gives the bank extra comfort.

How Upscore Can Help

Ready to check out loans from multiple lenders and get more home loan options? Sign up for Upscore’s Finance Passport today and boost your chances of securing the home loan you want.

Get started now!

Are Mortgage Rates Going Down?

Regardless of the reason, we can all appreciate that interest rates have been surging throughout Australia for a bit too long now, but are mortgage rates going down at last?

Some of the early signs we’ve had in 2025 this far would indicate that they genuinely are. For instance, on the 20th of May 2025, the Reserve Bank of Australia (RBA) cut the cash rate by 25 basis points to 3.85%, which was actually its first reduction in years.

The RBA noted that inflation has “fallen substantially since the peak in 2022” and growth was well below targets. So with inflation being back towards the 2-3% target and the economy sluggish, financial markets quickly began pricing in further rate cuts.

So, what does all that mean? In short, many economists now see the RBA shifting into easing mode for the rest of 2025.

Cash Rate Movement in 2025

Over the last few months, the RBA have made it public that they plan on, albeit cautiously, pivoting. Governor Michele Bullock described the May move as a “cautious” rate cut, noting the Board had even considered a larger cut but chose to move carefully.

Observers point out that inflation has eased significantly and is expected to return to the 2-3% range a lot sooner than we all initially thought, while GDP growth remains weak. Some analysts are forecasting the cash rate to reach about 3.6% by July, with another 25bp cut in August.

In effect, Reserve Bank policy has shifted from tightening to a much more gradual easing plan (The RBA is the sole issuer of monetary policy).

So if inflation keeps falling and the economy stays soft, markets expect the RBA to cut again later in 2025. We’ll get into what kinds of impact this can have shortly.

Passing on the Cuts

As to be expected, a lot of the big lenders out there moved pretty fast to match the RBA. On the same day, the 20th of May 2025, NAB announced it would cut its standard variable home loan rate by 0.25% (effective from the 30th of May). Within hours, Commonwealth Bank (CBA) said it would also cut its home loan variable rates by 0.25% (effective from the 30th of May), and ANZ announced the same 0.25% reduction.

Westpac followed suit, cutting its variable home loan rates by 0.25% for both new and existing borrowers (effective from the 3rd of June). Even Macquarie Bank lowered its variable home loan rates by 0.25% from the 23rd of May. You get the picture. In effect, nearly every major mortgage lender passed on the RBA’s rate cut to customers, but what does that entail?

Effect on Monthly Repayments

The good news is that these cuts translate into real dollar savings on monthly repayments. For example, CBA estimated that a 0.25% cut saves about $80 per month on a $500,000 owner-occupier loan under principal-and-interest repayments.

Larger loan amounts, of course, save more per basis-point: a 0.25% cut on a $600,000 loan would save roughly $100 per month. After two consecutive cuts, CBA noted many homeowners will “start to see a more meaningful change month to month” in their budgets. In other words, for average Australians carrying large home loan balances, even a quarter-point cut frees up hundreds of dollars each month.

Fixed vs Variable Mortgages

Most borrowers focus on variable-rate mortgages because those move with the cash rate. But fixed rate mortgages have been adjusting, too. Some banks actually cut fixed deals in anticipation.

In early 2025, Macquarie cut its 1- to 3-year fixed home loan rates by up to 0.16%, which naturally made them very competitive. In fact, many lenders now advertise lower fixed rate promotions than a few months ago.

If you have a fixed-rate loan now, your rate won’t change until that fixed term ends. But when your fixed term rolls off or if you take a new fixed-rate deal, you’ll find it set at a lower interest rate than before (be sure to compare principal-and-interest vs interest-only options and note the comparison rate whenever you’re looking at any fixed offer).

Exploring Your Options – What It Means for Borrowers

All things considered here, the trend is overall pretty good for borrowers. Lower interest rates means smaller monthly repayments on new and existing loans. That said, you’ve still got to compare the whole-of-loan cost, not just the headline rate.

Fortunately, Australian rules require lenders to display a comparison rate that includes most fees, along with a comparison rate warning. For example, CommBank’s disclosure notes: “Comparison rate is true only for the examples given and may not include all fees and charges”.

So this warning basically just reminds us that these advertised rates may exclude certain fees, and that two loans with the same nominal rate can have different total costs once things like fees and loan term are factored in.

Using Comparison Tables and Product Documents

When you’re thinking about choosing a home loan, try to take full advantage of some of the tools you have available. Many websites offer comparison tables that line up standard variable and fixed rates across lenders.

These tables are a solid way of spotting low advertised rates quickly. But after that, dive into each loan’s detail – look at the product information. Every home loan product has a Product Disclosure Statement (PDS) and a Target Market Determination (TMD) from the lender (the product issuer).

These documents spell out details like:

Who the loan is designed for
Its fees and charges
Its key conditions

The TMD in particular will highlight the typical borrower’s objective financial situation . In short, just make sure any loan matches your situation. Loan amounts and term length matter too – a lower interest rate on a large loan still means big payments, and vice versa.

Important Information and Disclaimers

Try to keep in mind here that everyone’s objectives and financial situation are different, so don’t just immediately take what we’re saying here as financial advice – it’s not.

Always make sure you’re reviewing all of the important information provided by the lender before acting on anything. Read the product disclosure statement (PDS) and target market determination (TMD) for any loan you consider.

Furthermore, we strongly recommend that you check the “Important Information” section of any of those documents for fees, and watch for any “comparison rate warning” or similar fine print.

Opportunities for Existing Borrowers

With the RBA cutting its cash rate and most lenders now responding appropriately, the overall trend is toward cheaper home loans than a year ago. Good news!

Keep an eye on rate announcements – when banks cut rates, it often pays to lock in a lower rate or refinance soon after. To put all this simply, borrowers who are informed and compare loan options are always going to benefit the most when home loan interest rates go down.

How Upscore Can Help

Ready to secure a loan? You’ll be able to compare offers from different lenders when you use Upscore’s free Finance Passport service, which is a solid way of getting the best loan terms for your circumstances. This can be a real advantage, whether you’re refinancing your Australian home loan or buying property overseas.

Get your free Finance Passport today!

How Much Deposit Do I Need For An Investment Property?

We get that buying an investment property can be exciting – it’s a whole different process to buying somewhere to live and your mindset is completely different – but it still raises a few practical questions.

In Australia, lenders generally expect a larger deposit on an investment home loan than on an owner-occupied loan. Typically, you’ll need around 20% of the purchase price as a deposit (an 80% loan-to-value ratio) if you want to avoid paying lenders mortgage insurance (LMI), which we’d definitely recommend you aim to do.

Some lenders will accept smaller deposits if you pay for the insurance. For example, some offer loans with as little as 10% deposit – but you must pay LMI. LMI is essentially insurance for the bank if you default.

How Much Can I Borrow?

So one of the main things that affects your borrowing power is your deposit size. This, alongside your income and whatever equity you already have. In practice, a larger deposit generally means a larger loan amount. Just make sure your first step here is reviewing your finances and working out how much you can borrow and afford.

Getting Pre-Approval

After this, get a home loan pre-approval so you can effectively ‘lock in’ your budget. A pre-approval essentially gives you provisional credit approval and shows sellers that you actually have a budget and are serious.

Since mid-2024, lenders have been a bit stricter on serviceability. And as a borrower, you’ll likely find that you qualify for smaller loan amounts than in earlier years. So it generally pays to be conservative: always ask yourself “how much can I borrow for investment property” in realistic terms.

As a rule of thumb, the maximum loan amount is roughly the purchase price minus your deposit, but it’s subject to your ability to service the loan. Use online borrowing-power calculators (you can find one at Upscore) or a broker’s help so you know you’re not overstretching.

Loan Types and Repayments

Next, consider your loan structure. You can choose fixed or variable rates, and principal-and-interest (P&I) or interest-only repayment options.

Interest-only loans keep your monthly repayments lower at first, so this helps your short-term cash flow when the property is finally rented. That said, interest-only comes with a longer-term cost: you pay no principal for a time, so you end up paying more interest overall.

Comparing Loan Rates

In fact, over the life of an interest-only loan you’ll usually end up paying more interest than with a standard loan. APRA data shows interest-only loans were about 21.0% of new housing lending in mid-2024.

And keep in mind that interest-only loans often carry higher interest rates than P&I loans, which just means a higher ongoing cost. If you choose interest-only, definitely plan for a jump in repayments later when the interest-only period ends.

So, how do P&I loans compare? These have higher repayments from day one but pay off the balance a lot more gradually. That said, there’s not really one ‘best choice’ here – it depends on your goals: interest-only can maximise cash flow now, while P&I is better if you plan to pay off the loan faster.

As always, read all loan terms and conditions carefully to understand rates, fees and limits before signing.

Cash Flow vs. Growth

So, after you’ve got a better idea of what loan type suits your needs the most, you’ve got to start thinking about your broader investment strategy.

Are you after steady cash flow or long-term capital growth? It’s not exactly uncommon for investors to aim for both, but one of those often takes priority over the other.

If cash flow is key, look for areas that have strong rental demand and decent yields. If growth is the goal, you might want to accept lower initial rent in exchange for a suburb that’s on the rise.

Generally speaking Australian gross rental yields are moving all the time, so it’s to give you an exact figure of what to expect. That said, inner-city yields (e.g. Sydney, Melbourne) tend to be lower.

That might sound a bit counter-intuitive, but because the property’s market value in these cities are disproportionately high compared to the rental income it can generate, the yield is actually a bit lower if you’re focused on short-term gains.

Always calculate whether expected rental income will cover your loan repayments and costs. If rental income is lower than your expenses, you’ll have negative cash flow (and rely on the tax offset we described).

Negative Gearing Benefits

Remember tax rules: in Australia you can generally deduct most property expenses (especially loan interest) against your taxable income. This means if your rent doesn’t cover your costs, that loss (a negatively geared situation) can often be used to reduce your tax, which is not a bad situation to be in.

Negative gearing can therefore offset some of your shortfalls while you wait for capital growth. It’s actually pretty common for investors to accept short-term losses since they know they will get tax deductions and hopefully capital gains later.

Choosing the Property

Location and property type affect both deposit size and returns. For example, Sydney’s median house price is about $2.05M (mid-2025), so a 20% deposit would be over $400k.

Brisbane’s median is around the $960k mark, so the deposit needed is much smaller. Also consider rental yield: inner-city apartments often yield under 4%, while houses in popular suburbs or smaller capitals tend to yield around 5% or more.

So just decide whether you want to prioritise capital growth (often higher in major-city suburbs) or rental yield (sometimes higher in regional or emerging areas).

Tenant Perspective

Think like you’re the tenant who’s going to be living here: amenities matter. This means you need easy access to:

Public transport
Schools
Shops

Brokers even suggest writing down what tenants want – “good schools nearby, parking spots and noise levels” are commonly cited factors. Take these into account as they’re almost always going to improve your rental income and reduce your risk of vacancies.

Upfront Costs

And don’t forget the other costs beyond the deposit:

Stamp duty
Legal and lender fees
Building inspections
Any initial repairs or renovations

These all have to be budgeted for. If your deposit is under 20%, add the LMI premium to your budget as well. For example, stamp duty on an $800k property can exceed $30,000, so these costs really matter. Altogether, these expenses can add tens of thousands to the total.

Final Steps and Credit Readiness

Before you make an offer, get organised. Secure formal pre-approval so you know exactly how much you can borrow. Lenders will then scrutinise your entire financial situation, which includes:

Income
Debts
Expenses
Credit score

That’s why you should address any credit issues and assemble all your paperwork in advance. Also, read every loan’s fine print. Know whether the loan is fixed or variable or how interest is calculated (including what fees or limits might apply.

Finally, consider getting professional help. A mortgage broker who specialises in property investing can explain which lenders have flexible rules (for example on LVR or interest-only) and help structure your loan to fit your strategy.

How Upscore Can Help

Looking to make the lending process as streamlined as possible? Upscore’s Finance Passport is free to try, so signing up early can give you insights into your credit standing before you apply.

Get started today!

How Does Equity Work When Buying a Second Home?

Are you thinking of getting an investment property, or just want to know how equity works when buying a second home? In simple terms, equity is the part of your existing home that you actually own and not just what you’re borrowing. So it’s market value minus what you owe.

For example, if your home is worth $800,000 and you owe $450,000 on the mortgage, your equity is $350,000. You can use that equity as part of the deposit on your next property. This means tapping the value already built up in your current home to fund the new purchase.

Again, that could be for a buy-to-let type property investment or just a house you plan to use as a holiday home, since the mechanics are fairly similar either way. We’re going to break down all you need to know about how this works throughout this article.

Calculating Your Usable Equity

So not all of that equity we mentioned earlier is actually immediately borrowable because lenders usually lend up to about 80% of your home’s value. This means your usable equity is the result of 0.8 x your home’s value – loan balance.

To use another example, on a $500,000 home with $320,000 owed, 80% of $500k is $400,000, minus $320,000 leaves you with $80,000 usable equity. Lenders like CommBank explain this sort of equation when you’re trying to tap into your equity: a $750,000 home with $400,000 owed has $350,000 equity, but only $200,000 usable (80% of value minus loan).

This all essentially means that any deposit beyond your equity must come from you. Lenders generally expect about a 20% deposit (often called a “20 deposit”). If your equity only covers, say, 15% of the price, the remaining 5% has to be a cash deposit or savings.

Keep in mind you’ll still need a bit of extra cash for stamp duty and any fees on the second home. If your usable equity isn’t enough for the full deposit and fees, you must make a cash contribution.

Using Equity to Fund the Second Home

In practice, you’ll be turning that equity into cash either by refinancing or getting a second mortgage. This is also generally one of the more popular ways to buy a second property. A common approach is a home loan top-up: you ask the lender to increase your existing mortgage and withdraw the extra as cash for the deposit.

Alternatively, you might open a separate investment loan against your current home to get the funds. In any case, you’ve effectively borrowed against your own equity.

After the top-up, your mortgage on the original home has increased – you now owe more. For example, if you buy a $400,000 house using an $80,000 equity deposit, the new loan amount is $320,000, and you pay interest on than $320k just as on a normal mortgage. In other words, you’re still paying the lender interest on that money.

Effectively, this means you’re taking advantage of the equity in your home to make this purchase comfortably.

Remember, your first home now secures the second loan too. We appreciate that this might all sound a bit complicated, but the main takeaway here is that using equity ties the two properties together financially.

Pros and Cons

So, what are the main arguments for using this method?

Pros

Using equity to buy a second home can be a good idea if you want to move fast. You’re not going to have to save years for a deposit, and a larger deposit can reduce or avoid lenders mortgage insurance (LMI). This can save you thousands in LMI premiums.

Cons

On the downside, you are increasing your total debt. Your repayments are going to get way bigger and make your cash flow a lot less manageable. You’re basically borrowing more money and increasing the amount you owe when you top up, so your bills go up.

Borrowing an extra $80,000 means paying interest on that $80,000 more debt. Also, keep in mind that investment home loans often carry slightly higher interest rates (0.2 – 0.4% more) than owner-occupier loans.

Some investors even take a short interest-only period on the new loan to improve cash flow, but this means you won’t be building up equity as quickly. Every dollar you borrow via equity is one more dollar of debt you repay at interest.

Investment Property vs Personal Use

If the second home is rented out, the rental income you’re getting from that can definitely help cover the loan. In fact, rental income can give you a steady cashflow, and most of the mortgage interest and other costs on that loan are tax-deductible. You’d also be able to negative-gear any rental loss against their other income.

On the other hand, if you’re just wanting it as a holiday home for personal use then you’re getting no rental income or tax deductions: you cover all interest and costs yourself. Also, any profit on sale will be fully taxable (since it was never your main residence), so you won’t get the main home CGT break.

Borrowing Power and Advice

Before you make a decision, check your borrowing power – the amount the bank will lend you based on your:

Income
Expenses
Existing debts

Even with your equity, lenders need to make sure you can actually service two loans. It’s smart to talk to a lending specialist or mortgage broker. Any proper home lending specialist can explain how your equity and borrowing power work together.

Our service at Upscore also helps you compare home loans and lets you choose the best lender for your needs. And another thing to remember is that interest rates on the new loan will reflect current market levels.

Just keep in mind that it’s not at all uncommon for lenders to charge a bit more on investment loans, and they tend to have different rules for interest-only or fixed terms. If you need some help sorting these details, a broker or even an online tool can calculate your borrowing power (which, again, you can do with Upscore) and match you to suitable home loans.

Grants and Final Thoughts

Unlike first-home buyers, there’s no general grant for second-home purchases in Australia. The First Home Owner Grant is only for first-timers, and most state incentives are only for specific cases.

So basically, there is no national “Second Home Buyers Grant.” (For example, Queensland’s new co-ownership plan was nicknamed the Second Home Buyers Grant, but it’s really just a shared-equity scheme, not a cash handout.)

In summary, using equity to buy a second home means converting the equity in your existing home into the deposit on another property. If you’re in doubt about how any of this works, get professional advice from a broker or financial adviser.

How Upscore Can Help

Ready to explore your options? Try signing up for Upscore’s Finance Passport. It will calculate your borrowing power based on your income and debts, then show you home loan options from different lenders that match your situation.

Secure your Upscore Finance Passport now!

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