Bridging home loans are for borrowers who are looking to purchase a new property before selling their current home. A bridging loan is useful for borrowers who want to finance the building of a new home while still living in the old one as an alternative to selling their existing property prior to starting this process. This saves borrowers from having to live in a rental property until construction is completed. In most scenarios borrowers have up to 12 months to sell the existing property. During this time the chosen lender will take both properties as security and will usually offer a standard variable rate with interest only repayments for this loan.
With having a bridging loan in place this does mean you will have to carry the weight of two mortgages at once, so with this in mind a bridging loan is not for everyone in the property buying market. You wouldn’t want to overestimate the sale price of your current home and find that your bridging loan for your new home is actually not affordable. When your current home is sold, the bridging loan is converted into a normal home loan based on principal & interest repayments and it is from this point you start making the full repayments on the new home loan.
With taking out a bridging loan, this can eliminate some of the stress of trying to match up settlement dates with the purchase property and the selling of your current one so this gives you a better chance of selling your existing home at a reasonable price you will actually be happy with, all without pressure of being on a constrained time frame and agreeing to the first offer that comes your way.
The way a bridging loan is assessed is by the total amount of finance borrowed otherwise known as peak debt, and it is calculated by adding the value of the newly proposed purchase along with the current outstanding amount on your existing home loan. Once the likely sale price of your existing home has been taken out of the equation you will be left with what is known as the ongoing balance which works out to be the balance of the new loan on your new home.
If you have a question regarding anything spoken about in this article or anything related to Bridging Loans. Click here to talk to your finance broker Gerry and he will be able to assist with answering any questions you may have.