How Bridging Loans Can Help You in the Current Market

In a perfect world, selling your home looks like this. You put your property on the market, sell and then seamlessly transfer your sale proceeds directly into the purchase of your next home which is the first home you inspected, fits your criteria perfectly and its settlement date ties in with the settlement of your own home.

Unfortunately, it is rarely this easy to match up your settlement dates. Enter bridging loans, which are designed to remove the stress of purchasing/selling a new home by supplying you with adequate funds to ‘bridge the gap’. Sometimes called ‘relocation loans’, these short-term loans can offer you more time and provide you with the finance you need in the meantime.

How Bridging Loans Work.

Let’s say you’re looking to downsize and you have just found a new home, it’s exactly what you want and ticks all your boxes. The problem? You haven’t yet sold your current home and will require the funds from that sale to facilitate the purchase of the property you’ve just found. If you wait for your house to sell, in the current market the property you’re chasing might get snapped up.

Or perhaps you’re constantly beaten to the punch and your offers aren’t being accepted! Buying and selling is highly competitive in this market and having your finance not dependent on selling your own home can give you an advantage when competing against other offers.

The solution, in these cases could be a bridging loan. This short-term loan from between six to 12 months fills the gap between the sale of one property and the purchase of the next.

It may also negate trying to find a short-term rental which are in short supply and moving twice.

What you need to know

Until now bridging loans are often more expensive than a regular mortgage. If you can sell and settle on your new property within the 3 month window, then you won’t incur interest charges on the loan!

With most bridging loans there are the following requirements:

• You need to have equity in your existing home.
• Your property may need to be on the market. Despite many lenders not requiring your property to be sold, it may need to be listed before you can attain bridging finance.
• You have adequate income to cover your repayments; as is the requirement with any loan.

Taking a bridging loan can give you flexibility to buy your next property immediately, especially if it’s a dream home you don’t want to miss out on. Or it can provide the option of waiting for a good price on your current home instead of rushing to make a sale.

On the flip side, be aware that you may have to pay interest on both mortgages until your existing home sells. If your property sells for less than expected, it will result in a higher debt or it fails to sell within 12 months, which may result in a default.

There is a new product on the market that offers 3-months’ interest free. Contact Sarah Chambers, Finance Broker with our partner Lendable to arrange an in-person consultation to discuss your situation and eligibility and see if a bridging loan can help you.

Lending services provided by Finex Corporation Pty Ltd T/As Lendable. Corporate Credit Representative 526960 of Australian Credit Licence 410232 / ACN 080 877 498