Bridging

A bridging loan is what?

A bridging loan, sometimes known as bridging finance, is a short-term loan designed to assist with the purchase of a new property while you sell your present one. Most people purchase their new house with the accessible equity after first selling their old house. Sometimes, though, buying first would be more appropriate.

How might a bridging loan be used?

Assume you have located the house of your dreams but have not sold the one you are in. You will need money to cover the difference between what you get from the sale of your current house and purchasing your new one. Basically, it's providing a line of credit to pay the "bridge" between acquiring the new property and getting settlement money on the old.

Remember, though, that you will have to pay the bridging loan as well as your original home loan simultaneously. You will have to prove that, between buying and selling, you can pay back the bridging finance interest charges. Some lenders capitalize the interest for the Bridging portion of the loan.

Bridging loans are for 12 months.

When would be the ideal selling date?

Location or way of life, there are many of reasons you would wish to sell. However, you should be aware of a few facts about the market since your timing might not exactly align with the ideal state of the property market.

Seasonality in nature

With Australia's seasons, the real estate market shifts. Usually with the biggest sales, spring is the most preferred period to sell.

Selling your house at slower times, like winter, has advantages though. Less properties will mean more possible purchasers would be able to visit your house.

Market Conditions

Seller's market: when there is more demand for homes than there are on hand for sale. In a seller's market you are more likely to sell your house fast.
Buyer's market: when more homes than purchasers are seeking to purchase are on the market for sale. In a buyer's market, it's all about endurance and realistic price range.

Useful advice

Knowing the state of the property market and where it is headed will assist you determine when to sell or buy.

Selling before purchasing benefits
You will be aware of the precise sum you will need to allocate to your next purchase.
You can wait until you're pleased with the sale price of your house instead of rushing it.
You won't have to pay two debts at once or seek for a bridging loan to finance both residences.

Cons

Should the house you require not be on the market, you will have to relocate without a fixed spot to dwell.
You could have to pay for rent and deal with the extra work and expenses of moving two times.
After you sell, prices could rise; you might be priced out of the market or unable to locate your ideal house for the appropriate budget.

Purchasing before selling: Advantages

Steer clear of rental property and several moving expenses.
Not bothered about rushing around looking for a new house to buy.
Using a growing market to maybe receive more for your money and increasing your income from a house sale.

Drawbacks

To pay for the new house, you could require a bridging loan.
Bridge loan rate is greater than that of our regular term loans.
Additional interest cost during the Bridging phase.
If you need the money to pay your debt (bridging loan), it could compel you to sell your original house at a reduced price.
Loan bridges must be paid back in twelve months.
Should your current house not sell for the required amount or predicted, you might have to look for more money to meet the gap.

Everybody's situation is different, as with any financial choice. Talk to one of our Mortgage Brokers to find out if bridging finance is appropriate for you before deciding to apply for the loan.

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