Buying and selling at the same time? You may wonder how to navigate the sometimes slippery slope of how to finance one home while waiting to sell another. Ideally, you’d be wanting to sell your current property and have the settlement on your new home line up for the same time frame, but chances are that is unlikely to happen, which means you may need to look into plan B. Bridging finance.
What is bridging finance?
A ‘bridging loan’ is finance that is sought to allow a person to borrow additional funds to purchase a new property before they have sold their current home. Essentially, it allows you to hold to properties at once. Just like other home loan products, a bridging loan offers you the flexibility of choosing either a fixed or variable rate, but will have a shorter loan term, generally anywhere between 6-12 months. As such, you will often be paying an in interest rate that is higher than the standard variable interest rate. Ultimately, this will depend on the lender and how risky they consider you situation to be.
How do I make repayments on a bridging loan?
Before taking out a bridging loan, it’s important to understand some of the finer details, such as knowing how your mortgage repayments will be calculated during the bridging period and how much you will need to pay. While you wait for sale of your existing home to reach settlement, the minimum repayments of your bridging loan are usually calculated on an interest only basis.
There may be an option to capitalise your repayments until the sale goes through but this will depend on your lender and it’s important to note that this will increase your maximum debt and therefore the overall interest you will pay. It’s a good idea to try to make some repayments to protect yourself from too much trouble if you have difficulty selling your current property. This will reduce your overall loan amount and the interest as you go, instead of being faced with a larger amount to pay at the final sale of your home.
What are some of the pro’s and con’s of bridging loans?
One of the main issues people find with bridging loans is that they tend to be more expensive than other more standard home loans due to a higher interest rate. On the other hand, they do provide an option for those who need more time to sell their home to achieve the best possible sale price rather than being forced into a corner to accept a lower offer due to desperation.
Is bridging finance a good option for me?
As with any finance, your circumstances need to be carefully assessed, ensuring you understand and consider the pro’s and con’s of any loan agreement. Talking to one of our brokers to determine if bridging finance is a suitable option for your current situation will give you the confidence to proceed or to find another option. Here’s some other benefits of choosing a broker rather than going straight to your bank.
If you would like to discuss bridging finance with one of our team, please get in touch today.
* All lending subject to status and lenders criteria. Terms & conditions apply. This document contains general information only. Your own personal circumstances have not been considered and you should seek independent financial advice prior to making any decision on a financial product.