upgrading

Hi Guys. Investment property is not my preferred investment weapon, but I may be about to acquire one by default.

Our house is worth about $800K with $550K mortgage. Have found the perfect house to upgrade to which we would hope to get for $900K to $950K. We have done a lot of work to the existing place and are not ready to part with it just yet.

Prices have dropped 20-30% in my area of Melbourne over the past 18 months and if we dont need to sell I would be happy to convert the loan to interest only fixed for 3-5 years and rent it out. It will just about be self funding.

I'm not sure how the banks would calculate our borrowing power. Do they take proposed rental from our existing principal residence into account? With $100K deposit on the new place our total loans would be around $1.35m-$1.4m which appears to be at the limit of borrowing for our combined incomes.

We are with ANZ at the moment and paying 5.1 & 5.2% which isn't the cheapest going around. Also their fixed rates are pretty poor too.. should I hit them up for a better deal or look to move? Would you recommend a mortgage broker? I generally try and stay away from commission driven trades but with the increasing complexity of my situation it might be an idea.

Any thought appreciated as to the best way forward..

Cheers.