Rarely does it happen that the dates on which we sell our previous home and buy the new one coincide. During this transition, you will require some financial aid to enable you to own two properties at once, while you wait to find a suitable buyer for your current property. This financial assistance is termed as a ‘bridging loan’ and is a major help during the cash crunch you face during this delay.
“Don’t miss out on your dream home just because you haven’t sold your current house yet. Let Credit Hub help you find a bridging loan for a smooth transition.”
A bridging loan is a short-term loan having a term of 6 to 12 months, covering both your current and the new debt. The ongoing balance is determined by adding the value of the new property you are buying with your outstanding mortgage on your present home and then deducting the possible sale price of the present home. This is basically the principal of the bridging loan.
Both your properties are used as security by the bank or lender and there will be one consolidated loan, called the peak debt, to cover both your current loan and the new purchase. Bridging loans work on an interest-only basis within the bridging period of, say, 6 months. Interest is compounded monthly on the ongoing balance. Once you sell your current property, the interest will be added on the principal amount and that amount will now be your new mortgage.
Bridging loan Melbourne is best for those who are buying at an auction, where funds are immediately required. It’s a good option for wealthy buyers and also for landlords.
As the name suggests, the exit date of the loan is agreed upon beforehand as the date of the repayment of the bridging loan. A closed bridging loan can only be availed by homebuyers who have already exchanged on the sale of their current property as rarely do sales fall through after exchange and the risk involved is considerably less.
For those who have found the home of their dreams, but have not yet put their current home up for sale, open bridging loan is the way to go. In this case, the exact date of exiting the loan is uncertain and the lender is going to ask you a lot more questions about property details of the new home and proof of your old home being actively marketed. If you have a considerable amount of equity in your current home and an exit strategy if the sale falls apart by chance, you will have a higher preference for lenders. The standard time period of an open bridging loan is twelve months considering that you are able to pay the interest during that period.
The major advantage of a bridging loan is that it eliminates the need to take out a fresh loan for the new property you purchase. Further, you don’t have to go through the hassle of maintaining two different loans at the same time.
During the time period of the bridging loan, full repayments on both loans are not required. Instead, you pay off the previous loan in the same way but for the bridging loan, you only have to repay the interest portion during the bridging period.
A bridging finance makes the whole process faster and easier as you do not have to wait till the existing house gets sold. You can move in whenever you are ready and not worry about selling off the older home in a hurry.
Bridging loans are often quite complex to understand and also have a higher interest rate than other loan options. However, they can buy you time before you get the best price for the existing home that One should weigh the pros and cons of a bridging loan before deciding to opt for one.
Our experienced advisers will sift through all the options and zero down on the one which mirrors your requirements. We will help you through the step-by-step process including research, evaluation, calculations, and documentation.
