Found the home of your dreams and want to know about bridging finance? Find out everything you need to know here<\/p>\n
We have many people contacting us every week wanting to know more about bridging finance, how it works and if it\u2019s a good option for them.<\/p>\n
There are a few things to be aware of that may catch out the unwary or inexperienced, but the good news is that the brokers we work with are experts when it comes to bridging finance and will be able to guide you and find the best deal for your circumstances.<\/p>\n
We\u2019ve put together this guide to answer as many questions as we can, but if you need more information contact us here<\/a>.<\/p>\n In this article we\u2019ll cover:<\/p>\n Also called \u2018bridging finance\u2019, this is a form of finance that is most often used in the Australian market by homeowners who need to finance the purchase of their next home, before they have had a chance to sell their existing property.<\/p>\n It\u2019s essentially an interest only home loan, usually offered on a short term basis. Although all lenders are different, how much you can borrow with a bridging loan is usually calculated on the amount of equity you have in your existing home.<\/p>\n This is a loan on top of your current home loan,\u00a0 so during the bridging loan period, you\u2019ll have to pay the interest on two loans.<\/p>\n Some lenders only require you to continue payments on your original home loan, the lender will then add the interest to the bridging loan, but you won\u2019t have to make any repayments until your current property is sold.<\/p>\n Other lenders may require repayments on both loans from the time you take out the bridging finance.<\/p>\n When you finally sell your home, the bridging loan is converted into a standard home loan.<\/p>\n It\u2019s important that you are aware of the bridging finance loan period, which is 6 months for an existing property and 12 months for a new property.<\/p>\n This is why you should get expert help<\/a> from one of the brokers we work with who, having access to the whole of the home loans market, will be able to find the best deal for you.<\/p>\n By taking out a bridging loan, the lender effectively finances the purchase of your new home, whilst taking over your existing mortgage.<\/p>\n The total amount you borrow is called the \u2018peak debt\u2019. This is worked out by adding the cost of your new home to the outstanding amount left on your current home.<\/p>\n By subtracting what you expect to get from the sale of your old home, you\u2019ll find out how much the \u2018ongoing balance\u2019 is, and this will be the balance of the new loan.<\/p>\n During bridging finance period, you will pay interest compounded monthly on the \u2018ongoing balance\u2019, usually at the standard variable rate.<\/p>\n For instance:<\/b><\/p>\n If your current mortgage is $200,000 and you want to buy a property worth $700,000.<\/p>\n Peak Debt = $200,000 (existing mortgage) + $700,000 (new house) = $900,000<\/p>\n Estimated sale of existing home $400,000<\/p>\n Ongoing Balance = $900,000 – $400,000 = $500,000<\/p>\n There are lenders who don\u2019t charge higher interest rates on bridging loans than on any other home loan product, but it pays to have a whole-of-market broker compare the market for you to make sure you end up with the best deal.<\/p>\n Have a chat with one of the expert brokers we work with by making an enquiry here<\/a> – we don\u2019t charge a fee and there\u2019s no obligation.<\/p>\n Yes. You usually have a choice between a closed bridging loan and an open bridging loan.<\/p>\n This is perfect for those who have already agreed on the sale terms of their property. These are seen by lenders to be less risky as the sale has already been locked in and you will be paying out the bridging loan on a set day.<\/p>\n You\u2019d need to take out this sort of bridging loan if you haven\u2019t finalised the sale of your home, or it\u2019s not on the market yet. This is usually used by people who have seen their dream home and want to make an offer.<\/p>\n These loans are seen to pose a higher risk to lenders, so generally you will need a higher level of equity in your current home.<\/p>\n Also, having a back up plan in case the sale of your home doesn\u2019t go through is a good idea.<\/p>\n There are some criteria that are required for a bridging loan that would not usually apply other types of home loans.<\/p>\n These include:<\/p>\n It is vitally important to know what the pros and cons of a bridging loan are. We recommend you talk to one of the expert<\/a>, bridging finance brokers we work with about this – there\u2019s no fee and we won\u2019t leave a mark on your credit rating.<\/p>\n Interest on a bridging loan is compounded monthly, so the longer it takes to sell your current home, the more interest you\u2019ll have to pay.<\/p>\n Also if you go over the loan time frame, lenders can charge a higher rate of interest.<\/p>\n There may also be fees on top of the interest you pay, so be sure to include these in your calculations.<\/p>\n Fees on a bridging loan may include some, or all of the ones listed below:<\/p>\n The above list is by no means comprehensive because all lenders are different, so you may be faced with other fees.<\/p>\n Recently, many lenders will allow you to make payments to offset the amount of interest you pay at the end of the loan.<\/p>\n Yes. The loan terms for bridging finance are usually set to 6 months for an existing house and 12 months for one that is being built. If you go over those periods, then you face higher interest charges.<\/p>\n The most prominent risk is if you fail to sell your existing home within the bridging loan period (6-12 months).<\/p>\n You could also fail to make the projected sale price of your existing property and fall short of the amount you need to pay out the bridging finance.<\/p>\n If you go beyond the set time period, the majority of lenders will increase the interest rate and there are many who will require that you convert the loan to a standard interest and principal home loan, and you will then be stuck with servicing both loans.<\/p>\n In Australia, bridging loans have become an increasingly popular way for people to move from one home to another. In an ideal world, your old home would settle on the same day as your new one, sadly, this is rarely the case, so a bridging loan means you put in an offer on a new home, before you sell the old one.<\/p>\n You can use a bridging loan (dependant on all other loan criteria being met) for the following:<\/p>\n Most lenders will not approve bridging finance to cover the costs of building a new home.<\/p>\n But there are a few lenders, and the broker we work with know who they are, who will consider a bridging loan for construction as long as it is completed within 6 months<\/p>\n Yes. Because bridging finance is not covered by lenders\u2019 mortgage insurance (LMI), which you will need if borrowing more than 80% of the value of the home.<\/p>\n This means you\u2019ll need to find at least 20% deposit in order to buy your new home. This will need to be in the form of regular savings over a least 3 months, which can be quite difficult for some people already paying an existing mortgage.<\/p>\n An alternative is to apply for a deposit bond, which is essentially a guarantee from an insurance company to the seller that you will complete the purchase.<\/p>\n There are only choices open to you depending on your circumstances and how much you need to borrow. Be aware than taking out additional credit through other means can put you in a difficult financial situation.<\/p>\n Could you be better off selling your existing property first and moving into rental accommodation? This all depends on how much interest you would have paid as opposed to how much you would spend on rent.<\/p>\n Could a wealthy relative or business help out with a peer to peer bridging loan? These are not very common and you would need the right advice from an expert to make sure you are getting a favourable deal. You can make a no obligation enquiry here<\/a>.<\/p>\n Typically, a regulated bridging loan can take four to six weeks to arrange.<\/p>\n But if the property you want to buy is for investment purposes, then depending on your circumstances, it could be as little a 3-5 days.<\/p>\n Yes. Bridging loans are quite often used for commercial real estate purchases<\/a> in a number of scenarios.<\/p>\n There are many lenders, hundreds in fact, who can help you with bridging finance.<\/p>\n They are all different, with different fees and interest rates\u2026 the trick is to find the one that will off you the best deal based on your circumstances, and if you don\u2019t choose the right lender, it could cost you hundreds, if not thousands of dollars more.<\/p>\n This is where the expert brokers we work with come in. They have access to, and a working relationship with all lenders, not just a select few, so they are in a better position to find the best deal for you.<\/p>\n Yes. With the right advice from one of the brokers we work with who are experts at finding the right bridging finance for people with bad credit.<\/p>\n The advantage you have over a standard home loan is that the money you are borrowing is already secured against the equity you have in your property.<\/p>\n This makes it less of a risk to the lender.<\/p>\n Because it\u2019s a bridging loan, you\u2019ll need a deposit of 20% anway and this has to come from substantiated savings over at least three months.<\/p>\n When it comes to bad credit and bridging finance, the only issue the lender may have is if it affects your exit strategy i.e. your ability to pay off the loan when it comes due and your ability to keep up payments on your home loan.<\/p>\n It all depends on a number of factors such as –<\/p>\n Check out our guide to bad credit mortgages in Australia here<\/a>, or better yet, you can arrange a no-obligation consultation here<\/a> with one of the advisors we work with.<\/p>\n They are experts when it comes to helping people with bad credit find bridging finance.<\/p>\n Not all brokers are the same. Some have access to just a few lenders, whist others, like the brokers we work with, have access to the whole market, so they can find the best deals for your circumstances.\u00a0<\/span><\/p>\n The brokers we work with have passed a 12 module training programme and are experts in their particular area.\u00a0<\/span><\/p>\n\n
What is a bridging loan?<\/h2>\n
How does a bridging loan work?<\/h2>\n
Are there different types of bridging loans?<\/h2>\n
Closed bridging loans<\/h3>\n
Open bridging loans<\/h3>\n
What are the requirements for getting a bridging loan?<\/h2>\n
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What are the pros and cons of a bridging loan?<\/h2>\n
Pros of bridging loans<\/h3>\n
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Cons of bridging loans<\/h3>\n
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What are the costs involved with a bridging loan?<\/h2>\n
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\nAdministration or repayment fees. This is to cover the cost of the paperwork at the end of the loan.<\/li>\n<\/ul>\nIs it just for short term loans?<\/h2>\n
Are there any risks I should know about?<\/h2>\n
What can I use bridging finance for?<\/h2>\n
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Building costs<\/h3>\n
Do I need a deposit for a bridging loan?<\/h2>\n
Deposit bond<\/h3>\n
Are there any alternatives to a bridging loan?<\/h2>\n
How quickly can I get a bridging loan?<\/h2>\n
Can a bridging loan be used for commercial properties?<\/h2>\n
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Who are the best bridging loan lenders?<\/h2>\n
Can I still get bridging finance with bad credit?<\/h2>\n
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Why should I talk to a whole-of-market broker?<\/h2>\n