Many homeowners prefer to sell their existing property before purchasing their new home. Sometimes, however, life isn’t always so easy and home hunters often find the perfect property before their existing home sells. A bridging loan is useful in this situation.
A bridging loan bridges the gap between selling your home and buying a new one.
Here is a list of bridging loans available in Australia.
How does a bridging loan work?
You can take out a bridging loan to supplement your existing home loan until you sell it. This is a quick and simple way to access equity during the selling period.
The minimum repayment for a bridging loan will typically be on an interest-only basis. This interest can be capitalized until the sale of your home.
The peak debt is the amount that you borrow when you apply for a bridge loan. This is the sum of your current loan balance, purchase costs, and contract purchase price for the new home.
The net sale proceeds of your current home, which are the sale price less any fees or other costs, can be used to reduce peak debt. The remaining debt is called the end debt and it’s repaid using a typical mortgage product.
Bridging loan benefits
These are just a few of the many benefits that a bridging loan can offer.
Flexibility:Bridging loan are known for their flexibility. You can arrange the loan to meet your needs and schedule. This flexibility is especially helpful to borrowers who are uncertain about their long-term plans, or who require financing for a project that is short-term.
Speed:Bridging loan approvals are often quick, which is great if you have a very urgent project. Bridging loans are a good option if you have to quickly settle a property transaction and don’t want to wait for traditional finance.
Convenience:Bridging Loans allow you to buy your property immediately without having to wait for your home to sell.
Repayments Depending on the structure of your loan, you might only need to repay once your property has been sold.
Do not rent:Bridging Loans help you avoid renting between the sale and the settling of your new home.
Wide use of funds: Bridging Loans can be used to meet a wide range of personal and business needs.
Online applications are possible for a bridging loan. Online applications are quick and easy. Online applications are available from many lenders. There are a variety of processing times and requirements that lenders can offer. Specialist lenders, fintechs and non-bank lenders may require more paperwork, but they will process your application faster.
What factors affect a bridging loan application?
These are the areas that can affect a bridging mortgage:
Home equity:Lenders review your equity level before deciding how much they will lend you. The more equity in your home the better.
End Debt: Many lenders offer bridging financing with the condition that there will end debt. The expected end debt cannot exceed the value of your new property.
The key takeaway
Bridging loans are a good option if you have to quickly purchase property or seize opportunities. A finance broker can ensure that you get the right loan for you.
