Bridging Finance… a short-term loan to secure your dream home

Are you looking to buy but haven’t yet sold? Has your dream home come on the market, but you need to sell in order to buy? With properties currently selling like hotcakes, when the opportunity presents itself to buy your next home, you don’t want to miss out.

So, what if we said, you can have your cake and eat it too?

Enter the world of bridging finance. These short-term loans enable you to ‘bridge’ the gap between the time you buy your new house and sell your old.

Bridging loans are available from banks and financial companies and provide the funds you need to buy or build a new property before you sell your existing one.

Simply put, they’re a short-term home loan. The bank will calculate the amount of money you owe on your current mortgage and combine it with the purchase price of your new home, to give you a new total short-term debt.

Let’s look at an example. The Kiri family have outgrown their Dinsdale home and found a new property they love in Hillcrest (with help from their helpful Lugtons Residential Sales Consultant, of course). Their current home has a value of $800,000 with $300,000 owing on the mortgage. The home the Kiri family have their eye on has an asking price of $950,000.

A bridging loan would combine the two debts to a total new short-term loan of $1,250,000. This would allow the Kiri family to move forward with their new purchase while organising the sale of their Dinsdale property.

In today’s market many people want to have their next purchase assured before they sell, to avoid the risk of the market moving on before they get back on the property ladder. A bridging loan allows you to do that, but there are a few things to consider:

• If your home takes longer to sell than anticipated (unlikely in the current market but never say never), you’ll be paying interest on your total debt for longer.
• If your home sells for less, you’ll have greater debt to service than first thought. Is that feasible?
• Bridging loans are what you might call a convenience or nice-to-have loan, so they tend to have higher interest rates and set up fees.

What is good to note, however, is that you only need to pay interest and not principal on the bridging portion of your debt.

Bridging loans eliminate the pressure to sell in a hurry, and makes the process of buying, selling, and lining up those settlement days a more feasible process.

Obviously, the less time you have a large debt to service the better. At Lugtons, our team will work with you to ensure you can buy and sell as quickly as possible, without jeopardizing your financial situation.

If your home sells quickly, you may only need a bridging loan for a few weeks, but for peace of mind the typical length of a bridging loan is six months if you’re selling, and 12 months if you’re building.

If you’re considering a bridging loan, talk through your options with your mortgage broker and bank to assess your eligibility. With new LVR (Loan to Value Ratio) restrictions being implemented by the Reserve Bank, speaking to your lender for a clear understanding of how a bridging loan may impact any property purchases is crucial.

We also work with Nest Home Loans who can help you navigate the world of finance and bridging loans.

Buying and selling at the same time can feel daunting but the Lugtons team is here to help. If you have been thinking of upsizing, downsizing, urbanizing or resizing, speak to our team today. They’re happy to talk finance options and property any time… over a piece of cake of course!