4227 2926

Bridging Finance

By
Tyrone Wiseman

The Facts on Bridging Finance:

If you are buying and selling at the same time, one of the biggest issues you could face is that of how to finance one home while waiting to sell another? Ideally, you would receive the proceeds of the sale from your current home in time to settle on your new home, however, the chances of it occurring in that order are slim – which is where bridging finance comes in. 

In simple terms, bridging finance is a loan that allows an individual to borrow any additional funds needed to purchase a new property before they have sold their current property. Essentially, it allows you to be able to purchase a new property before you have the funds available from the sale of your current property. 

A bridging loan is similar to other home loan products as it offers both a fixed or variable rate. However, it has a much shorter loan term – between 6-12 months – as it is expected the proceeds from the sale of the current property will cover the loan amount. Because of this shorter loan term, the interest rate on bridging loans is generally higher – depending on not only the lender, but on how risky they determine your current situation to be.  

The repayments on a bridging loan are usually calculated on an interest only basis while you wait for the sale of your existing home to reach settlement. Some lenders will have the option of being able to capitalise your repayments until the sale goes through, but doing this will increase your outstanding debt and therefore the overall interest you will pay. By making some repayments while you wait for your existing property to settle you will be able to reduce not only your overall loan amount, but the amount of interest you pay as well.

While the main advantage of a bridging loan is that it provides extra funds for those who need them to buy a new property while waiting for their existing property to sell, it also offers other benefits such as not being forced to accept a lower offer due to time limits. However, while bridging loans offer benefits to those who need it, it still comes with draw-backs, such as, the higher interest rate due to the shorter loan period, making bridging loans more expensive than regular home loan products.

The main advantage of a bridging loan is that it is able to provide an option to those who need more time to receive funds from the sale of their existing property in order to buy a new one. This means that the seller may not have to accept a lower offer due to time limitations. However, the biggest draw-back of a bridging loan is the higher interest rates they have due to the shorter loan term. Therefore, making bridging loans more expensive than the more standard home loan products. 

In order to fully understand whether a bridging loan is a good option for you, your circumstance will need to be carefully assessed. Talking to us will help you determine whether or not it is a suitable option.
VIEW MORE VIEW LESS

From our Archive

Evidence of Genuine Savings Read more
Credit Cards and your loan Read more
Why you need to do a Budget Read more
Is Pre-approval really pre-approval Read more
Aren't all loans the same? Read more
Income Assessments Read more

Make an Enquiry

Contact Us

4227 2926
118 Church Street St, Wollongong, NSW