Thursday 03 November 22
Found your new home but haven’t sold your old one yet? You should consider a bridging loan. This isn't as easy as it used to be due to new responsible lending regulations, so it is a bit of a tricky one if you don't have stacks of available cash to contribute. The size of the bridging loan is calculated on the availability equity in your current home. The maximum bridging loan is 80% LVR. Whether you’re upgrading or downsizing a bridging loan can provide a solution that allows you to avoid the stress of having to sell your home first and find temporary accommodation while you search for your next home
There are two kinds of bridging loans;
Closed- if you already have a contract of sale on current property and know the date when your home will be sold and the funds received.
Open- this is used if your current home hasn’t been sold yet
- Being able to proceed with confidence when you’ve found a new home but haven’t started the process of getting your current home ready for sale
- Avoiding the hassle of having to rent, move into a rental and then move again once you’ve found a new home
- Having the options of making payments only on your current loan, and you’ll pay interest on your bridging loan when you sell your existing loan and bridging loan is closed
- Paying interest on interest, plus fees (it's expensive)
- Higher interest rate
- No redraw
- Strict 12 months to sell
- Residential dwellings NO construction
- Security is over both houses if there is an end debt
- Bridging without end debt only requires property to be sold as security
- Purpose is for Owner Occupied/Principal place of residence only
Interest is capitalized and you will be paying interest on the interest. The interest capitalised each month until the loan is cleared. This means the interest will be added to the loan balance each month
Bridging is interest only during the bridging period
…Needless to say it can get very expensive!
Luckily servicing is calculated on the end debt only with most lenders
What if my current home loan is with a different bank to the bridging finance provider?
We will need to refinance to new lender first, then apply for bridging as a two-part process. If you need to take cash out using equity from the existing loan (in order to pay your deposit) you’ll need to do this anyway.
As always, there things can get quite complicated and it's best to sit down and talk through the scenario with Beth. Click here to book a meeting with our Mortgage broker to discuss your options and have Beth punch in your figures to the bridging calculator to make sure you'll be able to bridge successfully.