What is bridging finance?
Bridging finance is a short-term loan that lets you buy your next property before your current one has sold. It "bridges" the gap between the two settlements, so you are not forced to sell in a hurry or miss out on a home you want.
How bridging finance works
A bridging loan is generally secured against both your existing property and the new one, because you are using the equity in the home you are selling. There are usually two loans involved. The "peak debt" is the total you owe while you hold both properties, covering your existing lending plus the funds needed for the purchase.
Once your current home sells, the proceeds reduce this down to the "end debt", the amount left owing, which usually includes a buffer. It is usually short-term, often interest-only, and typically more expensive than a standard home loan.
What to weigh up
- The interest rate and fees are usually higher than on a regular loan, and interest can be calculated on the full peak debt.
- Most lenders expect your existing property to sell within a set period, often six to twelve months.
- You will need a realistic view of what your current home will sell for, since that sets your end debt and the buffer built into it, and your repayments once it settles.
- Valuations are typically required on both properties before a lender will approve the loan.
There are often better options
We frequently have alternatives to bridging loans that run longer and cost less, such as using existing equity, a longer settlement, or a deposit bond. Which option suits you depends on your circumstances, timing and the equity available.
How we can help
We will look at your numbers, talk through the realistic options for your situation, and let you know honestly whether bridging finance is the right tool or whether there is a better one. Before you head out and make an offer on that next property, contact us or call 08 6162 6577 and we will see how we can help.