Moving to a bigger home – that is one of many important decisions parents must make wisely. How can you make sure you don’t sell yourself short?
“When you consider the taxes, refinancing and moving costs, purchasing a new property can be costly,” says Freddy Meindertsma, a senior financial adviser with a financial advisory firm.
“So the question to ask yourself is whether it’s worthwhile moving or if you can make improvements to your current property. Depending on your circumstances, it might make more sense to renovate your existing home rather than move house.”
There are also many factors when considering home upgrading, he adds. First, you don’t want to overcapitalise.
“Overcapitalisation is when you spend more money on the house than it increases in value. Always keep in mind how your renovations may appeal to potential buyers later, and if they will pay more for these features. Personal style and preference often get in the way of smart investment decisions.”
And while renovating can be a cheaper alternative to moving to a bigger house entirely, Meindertsma says you also need to be realistic about the costs of home improvements.
“Upgrading to a new home is not a one-size-fits-all; neither is uprooting your family to a new house. It’s all about doing your research and weighing your options.”
The beauty of upsizing is you can use the equity you’ve already accumulated to your advantage. Equity allows you to reach higher than you would otherwise be able. It’s the difference between the value of your home and the amount left on your mortgage.
Remember, too, that upgrading to a larger home incurs more costs than just the price of the property itself.
You also need to consider factors such as stamp duty; refinance costs such as discharge fees, mortgage registration and deregistration fees, application fees, settlement fees, bank valuation fees, title search fees and the preparation of mortgage documents; agent fees and legal fees; moving costs, which many people often forget about; and building management fees, which can be particularly high for private residential condominium estates.
“There are also maintenance costs of your house or condo,” Freddy adds. “Bear in mind that the costs of upgrading continue well past the purchase date. And more rooms and space generally mean higher utility bills.”
You should also consider the monthly mortgage finance costs, if a property loan has been secured with the bank of your choice.
Freddy says that banks will not finance above a certain debt-servicing ratio, looking at how your monthly income is sufficient to cover your monthly mortgage instalment (which comprises interest and down payments).
If you do decide to move, you may have to cut back on other family expenses, Lee Chee Kian, senior client adviser at Providend, says.
“Think about the costs of your kids’ enrichment classes, their tertiary education and your own retirement. If you decide to spend more on a new house, would you still be able to afford the lifestyle that your family enjoys now? These things are all interconnected so you want to be conservative.”
Finally, if you want to move to a bigger home in an area that’s some distance from your office and the kids’ schools, you should consider if your family would be able to afford the extra travel time, says Simran Dadlani, a real estate broker at Powerful Negotiators @ PropNex.
It might be worth staying put if moving means you’d have to spend an extra 30 or 40 minutes just to get from place to place.