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Bridging Loans

Maybe you’ve found a new property, you feel it’s the right one for you and your family and you would want to negotiate and purchase the property right away – but only if you have extra funds to do it. You could sell your current house first, but it will take some time to find the right buyer and you may not be able to get the owner of your dream home to hold off other buyers to wait for you. Or maybe you can find a buyer for your home straight away, but you’d have to drop your asking price to get a quick sale. Do you have another option?

Yes, you do. You can apply for a bridging loan with your bank or any reputable lending firm in Australia. This type of loan allows you to have the funds to finance the purchase of a new home while selling your current home. This allows you to secure the property you want without being held back by the practicalities of sale. With this fund, you won’t be forced to sell your house at a lower price just so you get hold of some money right away to put towards the new property.

In essence, a bridging loan “bridges” the financial gap between two properties. If you are planning to build a new and bigger home to move to from your current home, a bridging loan will provide you the needed funds while allowing you extra time to sell your existing home and achieve a full-value return.

Bridging loan lenders can take security over either, or both, properties depending on the individual situation. Within the bridging loan period, your bridging loan will generally be charged as an interest-only loan. This enables you to keep your repayments down and help you meet your other expenses.

Depending on your lender’s particular products, you may:

  • Capitalise the interest on a bridging loan, or
  • Make weekly, fortnightly or monthly interest only payments.

When you sell your current home or property, the proceeds from the sale will be applied on the bridging loan – the amount you borrowed to finance the purchase of the new property. If the amount owed is more than you realise from the sale of your property, the bridging loan can then be refinanced into a more mainstream home loan, at a standard fixed or variable interest rate with principal and interest repayments.