Common Mistakes When Upsizing Your Home

Underestimating How Much You Can Actually Borrow

Your borrowing capacity depends on your current income, existing debts, and the equity you hold in your current property. Many high school teachers assume their salary alone determines how much they can borrow, but lenders assess your entire financial position including any investment loans, car loans, or credit card limits.

Consider a high school teacher earning $105,000 annually who owns a property valued at $650,000 with a remaining loan balance of $380,000. That $270,000 in equity can be used toward the purchase of a larger home, but accessing it depends on the new loan amount staying within serviceability limits. If your current debts are minimal and you have no other ongoing commitments, you might borrow enough to purchase at $850,000 or more without needing to sell first. If you carry a $15,000 car loan and a $20,000 credit card limit, even if unused, your borrowing capacity drops.

We regularly see teachers who could afford to upsize but delay because they haven't checked their borrowing capacity recently. Income rises over time, property values shift, and loan balances reduce. What seemed out of reach two years ago may now be within reach.

Not Checking Equity Before You Start Looking

You need to know how much equity you hold before you commit to a property search. Equity is the difference between your property's current value and what you owe on it. Lenders typically allow you to borrow up to 80% of your property's value without paying Lenders Mortgage Insurance, which means your usable equity sits at around 80% of the property value minus your loan balance.

In a scenario where your home is worth $720,000 and you owe $420,000, your equity is $300,000. At 80% loan to value ratio, lenders will lend $576,000 against that property. Subtract the $420,000 you owe, and you have $156,000 in usable equity. That amount can go toward a deposit on the next property, but it also needs to cover stamp duty, conveyancing, and any other settlement costs associated with the purchase.

If you assume you have more equity than you actually do, you may make an offer on a property that requires a deposit you cannot access. Getting loan pre-approval clarifies exactly how much you can use and what deposit you need to proceed.

Choosing the Wrong Loan Structure for Your Situation

The loan structure you pick now affects how much flexibility you have later. A variable rate gives you the ability to make extra repayments and access redraw without penalty, which matters if you plan to sell your current home after settlement and use the proceeds to reduce the new loan. A fixed rate locks in your interest rate but usually limits how much extra you can repay each year and may charge break costs if you pay down a large amount early.

A split loan divides your borrowing between variable and fixed portions. If you borrow $600,000, you might fix $300,000 for three years and leave $300,000 variable. The fixed portion provides certainty on half your repayments, while the variable portion allows you to make lump sum payments without penalty. This setup works when you expect a significant cash inflow, such as the sale of your current property, and want to reduce the loan quickly once that sale settles.

Some teachers assume fixing the entire loan amount provides the most stability, but if circumstances change and you want to pay down the loan faster, you may face thousands in break costs. Matching your loan structure to your actual plans prevents expensive adjustments later.

Failing to Account for Holding Costs Between Properties

If you purchase the larger home before selling your current property, you will hold two mortgages at the same time. Lenders assess whether you can service both loans together, not just the new one. Your income needs to cover both repayments, plus your living expenses, before the lender approves the application.

This period of overlap might last a few weeks or several months depending on how quickly your current property sells. Some lenders offer bridging finance to manage this gap, but bridging loans come with higher interest rates and additional fees. An alternative is to negotiate a longer settlement period on the new property so your current home sells before you take ownership of the next one.

We regularly see teachers who have their applications delayed or reduced because they did not factor in the cost of holding both properties. If your income does not support dual loans, you may need to sell first or explore a bridging loan to manage the transition.

Ignoring Loan Features That Support a Growing Family

An offset account reduces the interest you pay by offsetting your savings balance against your loan balance. If you have a $500,000 loan and $30,000 sitting in a linked offset account, you only pay interest on $470,000. The money in the offset remains accessible, which matters when you have children and need funds available for school expenses, medical costs, or unexpected repairs.

Portability allows you to transfer your existing loan to a new property without reapplying or paying discharge fees. If your current loan has a low interest rate or features you want to keep, portability saves time and avoids the cost of refinancing. Not all lenders offer this feature, and some only allow it under specific conditions, so confirm this before you assume your loan can move with you.

Interest only repayments reduce your monthly outgoings by only requiring interest payments for a set period, usually one to five years. This option suits teachers who need to manage cash flow while holding two properties or who plan to sell the original home and use the proceeds to reduce the new loan. Once the interest only period ends, repayments switch to principal and interest, which increases the monthly amount due.

Overlooking Rate Discounts and Refinancing Opportunities

Lenders offer different interest rate discounts depending on your loan amount, loan to value ratio, and whether you are an existing customer. A teacher borrowing $600,000 at 75% LVR may receive a larger rate discount than someone borrowing $300,000 at 85% LVR. The difference might be 0.20% to 0.40%, which adds up over the life of the loan.

If your current lender does not offer a strong rate for the new purchase, refinancing both loans to a new lender may deliver a lower rate across the board. Some lenders also provide cash back offers or waive application fees for new customers, which offsets some of the upfront costs associated with upsizing. Comparing your current home loan rates against what is available elsewhere shows whether refinancing makes sense, or whether your existing lender will match a lower rate to retain your business.

Some teachers assume loyalty to their current lender is rewarded, but in our experience, new customers often receive stronger discounts than existing ones. Reviewing your options before you commit ensures you are not paying more than necessary.

Assuming You Need to Sell Before You Buy

Many teachers believe they must sell their current home before they can purchase the next one, but this is not always the case. If your income supports the repayments on both loans and you have enough equity to cover the deposit on the new property, you can buy first and sell later. This approach removes the pressure of finding temporary accommodation or rushing into a purchase because your settlement deadline is approaching.

Buying first also gives you the option to keep your current property as an investment. If the location has strong rental demand and the property generates enough income to cover most of the loan repayments, holding it may build wealth over time. Switching the loan to an investment loan changes the interest rate slightly and affects your tax position, but it allows you to expand your property portfolio without selling.

If buying first is not an option due to serviceability limits, selling first gives you certainty about how much cash you will have available for the next purchase. The downside is that you may need to rent temporarily or negotiate a long settlement period to avoid the gap between selling and buying.

Call one of our team or book an appointment at a time that works for you. We will review your equity position, confirm your borrowing capacity, and identify which loan structure and features suit your plans for upsizing.

Frequently Asked Questions