September 04, 2015
Are you buying and selling at the same time? Then you may need to look into bridging finance.
In an ideal world, you’d sell your current property at the same time you buy your next home — but, unfortunately, it rarely happens like that.
Extenuating circumstances may force you to buy a new home before you sell your current place. And while buying before you sell certainly has its upsides – you only have to move once and you don’t have to find interim accommodation. There are some things, however, that you need to consider before doing it.
Often, when you buy a new home before you’ve sold your current place, you will need some sort of finance or loan to help you afford owning two properties at once.
This loan or finance is often referred to as a ‘bridging loan’. Just like other home loan products, a bridging loan offers you the flexibility of choosing either a fixed or variable rate.
Unlike your traditional home loan however, bridging finance has a shorter loan term – generally anywhere between six and 12 months – and the interest rate on this type of loan is often higher than a standard variable loan.
While some lenders will charge the standard variable rate on a bridging loan, others will adjust their interest rate based on your circumstances and how risky they consider your situation to be.
Before taking out a bridging loan, it’s important to know what you are getting yourself into. In the first instance, it’s important to know how your mortgage repayments are calculated during the bridging period and how much needs to be paid.
While the sale of your existing home goes through, the minimum repayments are usually calculated on an interest only basis. Depending on your lender you may be able to capitalise all repayments until the sale is completed. Of course, it’s important to note that if you do take this option, your peak debt will increase, which increases the overall interest you will pay.
Wherever possible, making some repayments is recommended so that if you have trouble selling your current place, you will not have an additional six months repayments added to your loan amount (instead, the amount to be added to your loan will be reduced by whatever you have already repaid).
Is it right for me?
Before taking out a bridging loan, it’s important to understand the pros and cons of this type of finance.
One of the key negatives associated with bridging finance is that these loans do tend to be slightly more expensive than a regular mortgage. That said, they do provide the benefit of time so that you’re able to wait and achieve the best possible selling price for your home rather than being in a position where you’re forced to accept a lower offer.
If you’re in a position where you think you may need a bridging loan, contact either Owun, Suzanne, Costa or Anthony on 02 9517 1818 or firstname.lastname@example.org to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!