Bridging the Gap: Navigating Bridging Loans for Your Home Move
Imagine finding your dream home, but your current property hasn't sold yet. This can put a damper on the excitement, but there's a financial tool that can help bridge this gap: the bridging loan.
How Do Bridging Loans Work in Australia?
Bridging loans are short-term loans designed to finance the purchase of a new property before you've sold your existing one. They essentially act as a temporary solution, "bridging" the time between buying and selling. The loan is secured against the equity in your current property, allowing you to borrow up to a certain percentage (usually around 80%) of its value.
Benefits of Bridging Loans:
Secure your dream home: Don't miss out on your perfect property because your current home hasn't sold. A bridging loan allows you to act fast and secure the new property.
More time to sell: Bridging loans typically offer a term of 6 to 12 months, giving you breathing room to find the right buyer for your existing property without feeling rushed.
Flexibility: Some lenders may allow you to make interest-only repayments during the bridging period, reducing the initial financial strain. Some even allow capitalised interest, that is, you don’t need to pay the interest; it just adds to the loan balance, which you extinguish when you sell your home.
Risks to Consider:
Higher interest rates: Bridging loans come with steeper interest rates compared to standard home loans.
Double repayments: You'll be responsible for repayments on both the bridging loan and your existing mortgage, increasing your monthly financial burden.
Pressure to sell: If your existing property takes longer to sell than anticipated, you may face difficulty refinancing the bridging loan or be forced to sell at a lower price.
When Might a Bridging Loan Be Right for You?
Bridging loans can be a good option if:
You're confident your current property will sell quickly in a strong market.
You have a buffer or savings to manage repayments during the bridging period.
You've found a new property that perfectly suits your needs and don't want to risk losing it.
Is a bridging loan the right move for your home buying journey? Speak to a us today!
The Bottom Line
Bridging loans offer a solution for those looking to buy before they sell, but they come with significant risks. Carefully weigh the benefits and drawbacks, considering your financial situation and the property market. Consulting with a mortgage broker can help you determine if a bridging loan is the right strategy for your Australian home buying journey.