Bridging Home Loans in Australia
The in-between phase of wanting to buy a new home before selling your old one can be awkward. Most of us don’t have the capital to purchase a second home without using the money we’ll ideally make from selling the home we currently own.
Real estate transactions are typically a slow burn, and no one likes the idea of house-hunting while renting a place temporarily and waiting for settlement on their old property. Then there’s the hassle of moving house twice in the space of just a few months, and the costs associated with this. Additionally, maybe you’ve already found your dream home and you’re eager to secure it before someone else grabs it.
If you’re in the market for a new property and need to find a way to bridge the gap between the sale of your old home and the purchase of your new one, a bridging loan could be the perfect solution.
What is a bridging home loan?
While bridging loans follow a similar concept to refinancing, they’re a far cry different from standard owner-occupied loans and other investment loans. Essentially, bridging finance is a loan that allows you to access funds quickly in order to complete the purchase of a property before your current one has sold.
Bridging loans are typically repaid within 12 months, although this can vary depending on the lender. The loan is then either refinanced or the bridging finance is paid off completely from the sale of your old property. Here’s a quick example to help explain how the bridging loan process works:
Let’s say Louise is selling her house, and already has her eyes set on the new home she wants to purchase. She still has a mortgage of $150,000 owing on her current home, and she needs $700,000 to purchase the new property. With a bridging home loan, Louise can borrow $850,000, and this sum becomes her Peak Debt.
This may seem like a lot but remember, this debt is temporary. Louise is paying interest on this $850,000 but this sum is drastically reduced as soon as her existing property is sold and the net proceeds come through. However much money Louise makes from the sale of her old home (minus real estate commissions, property tax, home staging and similar expenses) goes straight onto her Peak Debt. Let’s imagine the net proceeds from her old home are $500,000 – this brings her Peak Debt down to $350,000 and this is her new mortgage for her new home.
Is a bridging home loan the right avenue for you?
If you’re considering taking out a bridging home loan in Australia, there are a few things you should keep in mind:
- The purpose of the loan – It’s important to have a clear understanding of why you’re taking out the loan, as this will help to ensure that you’re borrowing the right amount and that you’ll be able to repay it within the agreed timeframe.
- Your financial situation – Bridging loans are typically repaid within 12 months, so you’ll need to make sure you’re in a financial position to repay the loan within this timeframe.
- The value of your property – This plays a big role in determining how much you can borrow, so it’s important to get a realistic appraisal of your property’s value before applying for a bridging loan.
- The interest rate – Bridging loans usually have higher interest rates than traditional home loans, so be sure to compare interest rates and fees from a number of different lenders before choosing a loan.
- The repayment term – As mentioned above, bridging loans are typically repaid within 12 months. However, some lenders may offer longer repayment terms, so you’ll need to compare repayment terms from different lenders before deciding on a loan that’s right for you.
Speak to BFG Loans about securing a bridging home loan today
Bridging loans are great for making the transition from one home to another smoother and more streamlined, not to mention securing your ideal home as/when it becomes available rather than waiting. However, your individual circumstances are a huge factor in whether a bridging home loan is right for you.
At BFG Loans, we will closely assess your situation and work closely alongside you to find the perfect bridging loan from a reputable lender, so that you can move out of your current home and settle into your next one with confidence and ease. Contact us for a consultation.