Does a bigger house mean a bigger mortgage?

Just when you thought you could manage your mortgage, you realise you’re starting to feel like the little old lady who lived in a shoe. You may be ready for more breathing space, but are your finances ready to move on bigger things too?

A bigger house doesn’t necessarily mean you’ll have to take on a massive mortgage. Here’s how you can manage a home loan wisely:

The best way to evaluate it is to compare the cost of repayments: crunch the numbers on your current loan against the higher mortgage to see what it’ll cost you each month. Then you can decide: is an extra room/garage/super-kitchen worth that extra meal out a week/guilt-free pair of shoes?

There’s a difference between how much you can borrow, and how much you can comfortably afford in monthly repayments. As a rule of thumb, if you have to contribute more than 30 per cent of your net income, it’s likely you’d experience mortgage stress. Use a mortgage repayments calculator to get an idea of what you can handle. Moving from a $500,000 mortgage to $650,000 means around an extra $800 a month.

Of course, it’s possible to upgrade to a bigger home without taking on a super-sized mortgage – it all comes down to doing your home work.

When was the last time you checked the interest rate you are paying against the best in the market? You might be surprised to find that you've been paying high rates or for features you don't use. It could be that even if you were going to take on a bigger mortgage your repayments would be similar just by switching to a lower rate loan. Check out the latest deals here on Mozo or be prepared to haggle with your existing bank to get the best deal you can.

Another key aspect to look at is location and the value of the house. Are you willing to move a little further afield for the extra bedrooms and the backyard you’d always dreamed of? The cost of a two-bedroom inner-city apartment in Sydney, for example, can get you a three-bedroom house with a generous yard in the outer suburbs.

Do you need to move immediately? If you can hold out a while longer (bring on the bunk beds!) you’ll be surprised by the savings. Simply by delaying the upgrade for 5 years, you’ll save $50,000 in interest (never mind what you could do with the money). Learn more about the total cost of a home loan by comparing the latest home loan deals on offer – the choices you make now can save you much in the long-term.