Selling and buying property.. Bridging the gap! | Mortgage Broker Newcastle | Y.I. Finance : Mortgage Broker Newcastle

Let us help you in bridging the gap…

Many property owners sell their existing property to purchase a new property at some point in their lives. In a perfect world, the sale of one and purchase of the other will happen in a smooth, seamless sequence. In reality it doesn’t always happen like that!

What are your options if you find the perfect property and your current property is still waiting for a buyer?

Perhaps you believe you can’t buy without selling but you don’t want to miss out on your dream home? One option you may have heard about is bridging finance.

What is bridging finance?

Bridging finance can be used to ‘bridge the gap’ between the purchase of your new home and sale of your current home.

The size of the bridging loan is calculated by adding the value of your new home loan onto your existing outstanding mortgage less the predicted sale price of your existing home. This is referred to as the ongoing balance.

Bridging finance is typically an interest only loan with a limited loan term.

As you are essentially carrying two loans at once a bridging loan isn’t for everyone – It is imperative you seek expert advice. As your finance specialist we can explore whether this finance type is suitable for your individual circumstances and financial situation.

What you should know…

You generally require a minimum of 50% equity in your current property to avoid a high interest rate.

Careful analysis of possible price fluctuations, auction clearance rates, general market conditions and selling seasons is essential.

As an interest only loan, interest is compounded monthly on the ongoing balance at the standard variable rate. The final interest bill will be added to the mortgage on your new home when you sell your existing home.

A maximum loan term will apply

There are generally restrictions on this type of purchase, eg not suitable for construction loans, strata title or company purchases

When your existing home is sold the bridging loan is converted to a regular principal and interest home loan for your new home. You then commence making repayments into your new home loan.

Costs and fees should be considered. Upfront costs of buying your new home, eg stamp duty, pest and building inspection and legal fees, can usually be added to the bridging loan

Traditionally, interest rates have been higher for bridging finance due to a greater element of risk. There are some lenders offering products at standard variable rates depending on your individual circumstance.

Risk factors of bridging finance

One of the biggest risks with this loan type is overestimating the eventual sale price of your existing home. Should market conditions shift during the loan term and there is a shortfall when paying out the bridging loan it could cost you dearly.

Advantages of bridging finance:

Allows you to buy a new property before your current property sells.

Avoids rental costs between selling existing property and buying your new home.

Usually only one repayment on current mortgage balance are made during bridging period.

Disadvantages of bridging finance:

You may require two property valuations resulting in two sets of valuation fees

If your existing home doesn’t sell within the loan term you will usually be charged at a higher interest rate.

The longer it takes to sell your existing home the higher the final interest bill.

If your current lender does not offer a bridging loan they may impose early exit fees if you choose an alternate lender. Analysis of all fees and costs applicable will be part of our assessment of the most suitable loan product for your situation.

Of course, it’s always worth investigating whether you are in a position to buy a new property AND keep your original property as an investment.

If you HAVEN’T explored the current equity in your home for a while then make sure you call us BEFORE you make any future buying decision. We are always here to help you on the path to wealth creation!

Click here to leave your details for a callback