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 provide the flexibility to allow you to buy before you sell.
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.
When can bridging loans help?
Bridging finance often plays are role when convenience, complexity or timing issues come into play. For some, the challenge may be that they want or need to sell their home but don’t want to do this before they have found the right next property, to avoid needing to rent in between. Bridging finance offers the flexibility to move ahead with the purchase.
For others, it’s about being ready when the right property comes along, especially if they’ve been searching for something rare or specific. We also work with clients who want to build their dream home while continuing to live in their current property during construction, so they can avoid renting while they wait.
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 any existing debt on your current home and the cost of the new purchase, including any associated buying costs.
Repayments are usually interest-only on the bridging component. In some cases, the interest can be added to the loan until your property is sold.
Once your current home sells, the proceeds clear the bridging loan, leaving a standard mortgage secured against your new property (or possibly no debt at all for downsizers).
When to talk to us about a bridging loan:
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 OR you may have a shortfall you cannot cover.
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 end debt
• the expected sale price of your property
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, but there can also be other financing options with considering depending on your circumstances. 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.