A bridging loan is generally short term finance that assists you purchasing your next home sooner.Banks will usually give you up to 6 months to sell your property while you are living in your new home. With bridging finance, the lender takes a mortgage over your existing property as well as providing you with the finance for the new property.
The total amount borrowed is called a ‘peak debt’ which is the total of your existing loan balance as well as the new contract price plus any purchase costs such as stamp duty, bank fees and legal fees.
Repayments during the bridging period are calculated on an interest only basis and most banks will capitalise the interest until the existing home is sold. The capitalised interest is usually accrued monthly and added to the peak debt.
Once the sale of your property goes through, the fund from the sale, minus any costs, are used to reduce down the peak debt. The remaining debt (the end debt) reverts to a standard mortgage and paid off under standard terms.
Depending on your financial circumstances, bridging loans can either be quite simple or a little more complex. It is better to discuss your bridging loan options with one of our experienced mortgage brokers, so we can research and compare the difference lenders and present you with your best options that suit your needs.
Key features of a bridging loan:
- Interest can be capitalised which may help getting the finance if servicing with the bank is tight. Also gives you some room to breathe knowing that you don’t have to pay interest on two loans.
- You can purchase the home you want and move into it while waiting for your home to sell. If you are buying a market that is good to buy but bad to sell, you can have up to 6-12 months with some lenders to sell your home.
- You can potentially borrow over 100% of the new purchase price.
- Some lenders will allow you to have access to a bridging loan while you are moving into it.