Bridging Loans Explained
Timing Doesn’t Have To Be Everything
Are you ready to build or buy now, but haven’t yet sold your old property?
Trying to sell one property and buy another can be quite a daunting and emotional process, especially when the timelines of both projects don’t match up perfectly.
Bridging finance could be the answer to keep the ball rolling, and buy that new property, while the old one is sold via your agent over the next 1-12 months time.
A bridging loan is usually just an extension of the loan amount on a regular home loan, and it can cover the purchase price or construction costs of a new property while your old one is selling.
Managing the 'in-between' time
Most lenders offer a period of interest-only repayments on bridging loans, allowing borrowers to get into their new home sooner without having to start paying off a full mortgage before selling the old one.
A Case Study:
Let’s say that you have a $500,000 property with $200,000 owing on the mortgage and you want to buy a new home worth $700,000 plus $35,000 to cover the costs of stamp duty, legal costs and mortgage application fees.
This brings the cost of buying the new property to $735,000.
You haven’t been able to sell your home yet, so in order to buy your new property, you need a $935,000 bridging loan.
- Once your bridging loan is advanced, you’re able to settle on the new home and advertise or settle on the old property.
- After 3-4 months you’re able to sell your old home for $500,000.
- The sales proceeds ($500,000) are subtracted from the peak debt ($935,000).
- This reduces the new mortgage to $435,000
From there, you simply continue to make normal home loan repayments under the new mortgage of $435,000
Benefits of Bridging Finance
- Search for a new home with greater confidence - you are not tied into matching dates on when your old property will sell
- Choose between principal and interest, or interest-only repayments for the bridging period
- Use the proceeds from the sale of your home to reduce the balance on your bridging loan following settlement - getting your loan size back to normal levels
- Make unlimited lump sum payments, depending on the terms of your finance (restrictions apply to Fixed Rate home loans).
Aspiire is also well accustomed to negotiating rates with banks to get appropriate deals for their clients. They use their knowledge and other banks’ rates to drive rates lower.
Who does bridging finance?
Main banks, such as ANZ and other big 4 banks have bridging options, as do second tier lenders.
In many cases, second tier lenders are more flexible and more competitive than main bank lenders in order to attract business.
We can help you assess the market and give you a personalised comparison and pre-assessment that you will not be able to produce from websites or call centres. And of course, we can liaise with the lender across the process to make sure it all runs smoothly.
If structured correctly, with realistic time periods and price estimates, bridging finance can ease the pressure of matching up settlement dates, and give you time to sell your existing property whilst securing your new one.
HOW WE SUPPORT CLIENTS
At Aspiire, we have supported clients who are looking to purchase a property, through:
- Helping them get clear on their objectives
- Ensuring Debts and Mortgages are well managed and with good providers
- Ensuring financial affairs are structured effectively
- Providing pre-approval reports with your buying power
- Arranging fully approved finance
- Arranging value add services such as accounting, building and contents insurance, depreciation reports, and legal conveyancing at preferred prices.
At Aspiire, we cover financial advice and mortgage & finance broking to get more holistic results for our clients. Learn more about how we could help...