Finding your next home on your timeline
For many homeowners, timing is one of the biggest challenges when moving. If you need to sell your current home to fund your next purchase, a bridging loan may offer added flexibility.
As interest rates and living costs rise, more buyers are exploring bridging finance to manage the move from one property to the next. Here’s how it works and what to consider.
What is a bridging loan?
A bridging loan is a short-term loan that may let you buy a new property before selling your current home. It helps cover the gap between buying and selling.
In simple terms, the lender uses the equity in your current home to help fund your next purchase.
In a competitive market, some buyers use bridging finance to act faster and with more confidence. Instead of making an offer subject to the sale of their current home, they may be able to make it subject only to finance, which can be more attractive to some vendors.
It can also reduce the need for temporary accommodation, making the move more seamless. Homeowners may use bridging finance when downsizing, upsizing or relocating.
How do bridging loans work?
Bridging loans are usually set up for six to twelve months, but you may need them for less time if your property sells quickly.
During this time, your lender temporarily finances both properties:
• your current home
• your new purchase
This creates what’s known as peak debt, which includes:
• the remaining loan on your current home
• the purchase price of your new property
• associated buying costs
Repayments are usually interest-only. In some cases, the interest can be added to the loan until your property is sold. Once your current home sells, the proceeds reduce the loan, leaving a standard mortgage secured against your new property.
When might a bridging loan be useful?
Bridging finance carries risks, but it may be worth considering if:
- you find the right property before your current home sells
- you want to avoid temporary accommodation between sale and purchase
- you need flexibility in a fast-moving property market
- you have sufficient equity in your existing home
Things to consider
As with any loan, it’s important to understand the potential downsides:
- interest rates may be higher than standard home loans
- holding debt on two properties, even temporarily, can add pressure
- you need to weigh the cost against alternatives, such as renting
- if your property takes longer to sell, or sells for less than expected, you may need to cover a shortfall
What will lenders look at?
When assessing a bridging loan, lenders usually consider:
- the value and equity in your current home
- your ability to service the peak debt
- the expected sale price of your property
- current market conditions
Planning your next move
Bridging loans can offer useful flexibility when the timing of buying and selling doesn’t line up. They’re generally best suited to borrowers with strong equity and a clear exit strategy.
If you’re planning your next move and need lending advice, contact your FMD adviser or book a chat with me.
General advice disclaimer: This article has been prepared by FMD Financial and is intended to be a general overview of the subject matter. The information in this article is not intended to be comprehensive and should not be relied upon as such. In preparing this article we have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained on this article to particular circumstances. FMD Financial, its officers and employees will not be liable for any loss or damage sustained by any person acting in reliance on the information contained on this article. FMD Group Pty Ltd ABN 99 103 115 591 trading as FMD Financial is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977. The FMD advisers are Authorised Representatives of FMD Advisory Services Pty Ltd AFSL 232977. Rev Invest Pty Ltd is a Corporate Authorised Representative of FMD Advisory Services Pty Ltd AFSL 232977.