So you’ve found your dream home for sale and you want to snatch it up before anyone else does… but you haven’t managed to sell your existing property yet. Do you frantically try to sell your current home and make an offer on the new place, or do you opt for a bridging loan?
For those who are new to the concept, a bridging loan helps homeowners smoothly transition from one home to another, without having to sell the initial property first or deal with the awkward “in-between” phase of not having a home at all.
While most people typically sell their old home first and then use the available equity to purchase their next property, sometimes buying before selling is the better option. This is where bridging loans come into play.
What is the meaning of “bridge loans” or “bridge financing”?
In a nutshell, a bridging loan provides you with access to the funds you require to buy your new home before you’ve sold the previous one.
When someone takes out a bridging loan, the lender typically inherits the mortgage on their existing property as well as financing the new property purchase. This combined sum is referred to as the Peak Debt, and it also includes the costs of stamp duty and legal fees, as well as the lender’s own charges.
When considering a bridge loan for home purchase, it’s worth taking into account that in most circumstances, the minimum repayments on bridging loans are calculated on an interest-only basis which is capitalised until the current property is sold.
Once the house sells, the accrued interest is added to the Peak Debt. Generally, you have 12 months to repay the cost of this “bridge” once you’ve sold your old property. The proceeds from the sale of the homeowner’s previous property go towards reducing the Peak Debt, and the leftover sum becomes a standard mortgage on the new property.
An example of using a bridge loan for home purchase
Let’s say Susan is selling a house with a mortgage. She still owes $150,000 on her current property, and she needs $600,000 to purchase her new home. Susan can borrow $750,000 from a bridge loan lender, and this will become her Peak Debt.
However, this debt is only short term. Susan is paying interest on this $750,000 but once her original property sells, this sum will be drastically reduced. The net proceeds from her first property’s sale (i.e. the total amount received after the costs of real estate commissions, property tax, home staging etc.) are $450,000, which goes straight onto her Peak Debt and brings it down to $300,000. This becomes the mortgage on her new house.
What are the advantages of a bridging loan?
Whether you are looking for financing to buy new land and build a house, or you simply want to secure your dream home before someone else buys it, there are numerous benefits to opting for a bridging loan:
- Avoid moving into a rental property during the interim, and having to move house twice (along with the associated fees)
- Secure your ideal next property as and when it becomes available
- Take advantage of a rising market, and potentially make more from the sale of your current home
- There’s always the chance that house prices might go up before you manage to sell, and you end up being priced out of what you were in the market for
Apply for a bridging loan from RealtyAssist
When it comes to bridging loan lenders, RealtyAssist offers the best bridging loans you’ll come across in Australia.
Our no-fuss settlement fund advances allow you to collect the proceeds of your settlement now, with access to up to 80% of the equity in your property’s sale in advance. No stress, no delays, and no arduous application process that traditional lenders tend to put homeowners through.
Our process is remarkably straightforward:
Step 1 – Your house is under offer and proceeding to settlement.
Step 2 – You or your broker requests a settlement advance on Realty Assist’s portal.
Step 3 – We review the information required.
Step 4 – We instantly pay your advance request to your chosen account.
Rest assured, we provide same-day funding, with zero application or admin fee, and we don’t require a credit check on your history. We simply charge a one-off credit fee of 3.49% of your advance amount for the first 60 days*.
*Interest on overdue amounts will be charged at a rate of 1.5% of the outstanding amount payable on the 61st day, and then every 30 days after the due date.