You’re thinking of buying a new home, but haven’t sold your current home yet. You’re not really sure which to do first. A few people have suggested that you should look at getting a Bridging home loan to help.
But, what is a Bridging home loan?
A Bridging Loan helps cover the financial gap between your new property purchase and the sale of your current property. It’s a short term loan that allows you to buy the home you love now, whilst selling your current home.
The equity in your current home provides the funds needed during the bridging period whilst you own 2 properties simultaneously. Also, the interest only repayments from the bridging loan only apply once you’ve sold the current home.
An example to demonstrate this, is below:
You currently own an apartment where your mortgage is $200,000, and the bank’s valuer has determined its value as $400,000.
The new home you love (even with the savings you already have) will require a new mortgage for $600,000. In this example your bridging loan would be for $800,000.
Let’s say your apartment sells for $400,000. Your mortgage associated with that apartment is paid out and closed. Then, the additional $200,000 you have remaining from the sale is used on the mortgage for your new home. Making the final amount owed $400,000, plus the interest accumulated during the bridging period.
The interest accumulated during the bridging period is determined by how long it takes for your current mortgage to be paid out and closed. The interest is calculated on a daily basis however the bank will provide you with a bridging loan limit based on requiring 12 months for your current mortgage to be closed.
What are the potential risks with a Bridging home loan?
There are many benefits to utilising a Bridging home loan, however, where there are benefits, there are also risks. Such as, the interest rates with a Bridging home loan will most often be higher. Due to the higher rates, you may end up spending a lot more on interest than expected if the current home doesn’t sell fast enough. There’s also the risk that the property doesn’t sell for as much as expected, which then has financial implications on your situation and future mortgage repayments.
How can I go about applying for a Bridging home loan? Is it right for me?
The process will vary from lender to lender and will have minimum and maximum loan terms as well as special terms and conditions that will need to be followed. The best way to go about organising a bridging loan will be to talk to your mortgage broker and move forward from there.
To decide whether or not a bridging loan is for you, please, get in touch with us so that we can assist you with the decision and potential application.