Bridging Loans: The loan that could solve your sell or purchase Catch-22
Introduction:
If you are buying a new home, but need to sell your old to afford it, you may wonder what you need to do to fix this Catch-22.
However, this is where a Bridging Loan comes in.
This week’s blog post discusses Bridging Loans – what are they, how they work, what benefits they bring, and what you need to be aware of before applying for one.
What is a Bridging Loan?
A Bridging Loan, to be specific is a loan that helps you pay for a new property while you are still living in your old home.
Normally a Bridging Loan has a term of one year or twelve months, and this allows you to be able to sell your home and purchase a new one at the best point in time that suits you.
At the start of the Bridging Loan, you have Peak Debt, and then when you are able to sell the home you are living in, you take that money and put it towards paying off the Bridging Loan.
Then you have normally only Ongoing Loan repayments that are for your new property.
Usually a Bridging Loan has repayments made only with interest, which you have to repay once a month – but is calculated each day.
During the time you have a Bridging Loan, you will be making higher repayments as you will be paying back both the bridging loan and the loan on your current property.
While often it is thought that Bridging Loan interest rates are higher when compared to other home loans, that is not always the case.
The bank could get you to hold your savings so that they are certain you will be able to make the repayments.
Why choose a Bridging Loan
There are many benefits to buying a home using a Bridging Loan.
If you are planning to purchase a property before you are able to sell your house, want to purchase your next home and don’t want to sell your current home before, or want to not have to rent while selling your old home to afford your new one, then a Bridging Loan may be exactly what you need.
Additionally, if you require a period to renovate your property before you sell it, do not want to have to line up the date of settlements, discover the home of your dreams but are not quite ready to put your residence on the market, a bridging loan is the ideal solution.
Furthermore, you can receive pre-approval for a Bridging Loan.
Pre-approval allows you to be able to look for a home with the knowledge of the total amount you can be loaned from the bank.
Bridging loans with banks such as ANZ also allow you to be able to borrow a maximum of eighty percent of the value of the new property.
Another positive is with some banks you can potentially put equity from the property you are living in towards the new property’s deposit and put legal fees and stamp duty onto an Ongoing Loan as long as you have a suitable amount of equity from the value of both properties.
Stop and think
However, there are a few things you should think about before committing to a Bridging Loan.
Make sure that you know you will be able to sell the property within twelve months in order to pay back the Bridging Loan.
However, speak to your broker or lender for options if during this time you think you may not be able to get the property sold.
On the other hand, if you do sell your home – but for less than you hoped for – you should also talk to your broker or lender to assess your Ongoing Loan as well as any other pathways for you.
This is also why you should be aware that changes in the market might change your property of the moment’s sale price, and that can have an effect on the new property you are purchasing’s Ongoing Loan.
Conclusion
At the end of the day, it is best to speak to your mortgage broker to see if a Bridging Loan is right for you.
If you would like more information about Bridging Loans, or about home loans in general, please reach out to the friendly team at AA Finance Solutions.
