Have you managed to find your dream home but you haven’t yet been able to sell your existing property in time? In the right circumstances, bridging finance can be a fantastic option to help you with the transition from one property to another.
What is it?
Bridging finance as the name implies, serves as a “bridge”, allowing you to purchase a new property before the sale of your existing one. Typically, lenders will give you between 6 to 12 months to repay the line of credit in full using the equity you have received from the sale of your current home. Depending on the lender, it is possible to borrow up to 100 percent of the estimated property value for the new home purchase.
As we know, the Australian real estate market today often presents us with pricing fluctuations, slowing auction clearance rates and an overall sense of uncertainty, which can make it difficult to sell promptly. A slow sale may mean that you find your next place before you’ve been able to sell or settle on your existing home.
If bridging finance is suitable for you, it’s a very helpful option to consider so you don’t lose out on the perfect property before your current home can sell. It’s important to understand the pro’s and con’s associated with a bridging loan, to establish whether bridging finance is suitable for you.
The main advantage of bridging finance is that you’re able to purchase and the secure the property of your choice. It’s all about timing in the real estate market, in terms of when the property is available and when is a good time to sell your home. Because bridging finance gives you an additional 6-12 months to sell your property at your leisure, you’ll be able to search for a new home with much more confidence.
You’ll also be able to avoid having to move into the rental market while you are looking for a home to purchase. This will save you from the hassle associated with moving house twice, including efforts of unpacking, additional expenses, and of course the cost of regular rental payments.
The main disadvantage of using bridging finance is the higher interest rates and fees. During the bridging finance process, most lenders will charge you a higher interest rate than regular home loan rates. However, if you do your research, you may be able to locate lenders that can charge you closer to standard rates.
It’s important to be aware that not everyone qualifies for bridging finance. Before committing, make sure you are in a position to afford bridging finance. It is possible for the borrower to overestimate the amount they believe their existing property will sell at. If the sale falls short of the anticipated amount, the borrower will have to cover the outstanding amount.
Another disadvantage is the time limit of either 6 or 12 months. If you’re having trouble selling your current home or settlement is delayed, you may run into some difficulties. Also, remember that the longer you take to sell your existing home, the higher your interest repayment will be.
And of course, bridging finance will leave you with an additional financial commitment, as you will now be paying two loans off at the same time; your original home loan and the bridging finance loan.
Before you make any decision, talk to an Oxygen Mortgage Broker to see what is best suited to you, as the best type of financing for you is dependent on your personal situation.