When "moving" by selling a property with an outstanding mortgage and purchasing a new one, a home replacement loan (moving loan) is a promising option that can consolidate the remaining debt and a new purchase loan. However, since it is more complex and higher risk than a normal home loan, it's important to accurately understand the conditions and precautions.
What Is a Home Replacement Loan?
A home replacement loan is a home loan that allows you to borrow the combined total of the remaining debt on the property being sold and the loan for the new property being purchased. While normal home loans require paying off remaining debt in a lump sum from personal funds, a home replacement loan makes moving possible even when funding is difficult.
What Are the Conditions for Using a Home Replacement Loan?
Condition ①: Purchasing a New Residence
Home replacement loans can only be used when purchasing a new property. Not eligible if not planning a purchase.
Condition ②: Remaining Debt After Sale
Those who can fully pay off the loan with the sale proceeds use normal moving procedures and are not eligible for a home replacement loan. Only usable when remaining debt occurs.
Condition ③: No Issues with Credit History
Since this is a higher loan amount than a normal home loan, screening is strict, with past delinquency history and cash advance history also subject to review. Checking credit history in advance is important.
What Are the Merits and Demerits of Home Replacement Loans?
Merit: Moving Can Be Realized Even with Remaining Debt
The greatest merit is being able to consolidate remaining debt and avoid double loans. Compared to cases where double loans are arranged, miscellaneous costs, effort, and interest can be reduced.
Demerit: Procedures Are Complex and Schedule Becomes Tight
Home replacement loans require the delivery dates of the sold and purchased properties to be on the same day, necessitating simultaneous processing of multiple financial institution procedures. The burden of managing both sale and purchase in parallel is a demerit.
Precautions for Home Replacement Loans: Preventing Over-Borrowing and Estimating Sale Amount
Over-Borrowing Is a Cause of Financial Ruin
The amount approved in screening and the actual amount repayable are different things. Overly optimistic projections like "I can pay with bonuses" or "cutting back on dining will be fine" are dangerous. A repayment plan that can withstand irregular expenses and income decreases is necessary.
Conservatively Estimating the Sale Amount Is the Golden Rule
It's not guaranteed you'll sell at the appraised amount. Estimate the sale amount conservatively and confirm that screening passes even if the difference is added to the remaining debt. If the sale amount falls below expectations, additional screening is required, and if the planned purchase property is canceled, there is also a risk of penalties.
For real estate selling strategy, also see How to Avoid Losses in Real Estate Sales!
FAQ
Q1. What is the difference between a home replacement loan and double loans?
Double loans mean separately taking out a new residence purchase loan before selling, temporarily resulting in repayment of both. Home replacement loans consolidate remaining debt and a new loan, avoiding double payments.
Q2. What happens when delivery dates cannot be on the same day?
The requirements for home replacement loans cannot be met, so other means such as bridge loans must be considered.
Q3. How strict is the screening for home replacement loans?
Stricter than normal home loans, as it involves an overloan situation where the borrowing amount exceeds the property value, with repayment burden rate, credit history, and workplace stability receiving focused review.
Q4. Are there tax benefits with home replacement loans?
Mortgage deduction may be applicable. However, consulting a tax accountant is recommended to check the possibility of gain/loss offsetting for the sold property and the conditions for applying special provisions.
Q5. Which financial institutions offer home replacement loans?
Many financial institutions including major banks, regional banks, and online banks handle them, but conditions differ by institution. Comparing multiple institutions and selecting favorable conditions on a total repayment basis is important.
