Here's an overview of how a bridging loan works. For more information, chat with your Fync home loan specialist.
What is a Bridging Loan?
A bridging loan serves as a short-term financial bridge, purpose-built to cover the purchase price of your new property while allowing you ample time to sell your current one. This financial maneuver smooths the process of transitioning from one property to another, even if you currently have an existing mortgage.
How does a Bridging Loan work?
Bridging finance essentially merges your existing home loan with the additional loan required for your new property purchase. During the bridging period, your repayments will be higher as you're covering two properties. The loans can be structured differently, and you can talk to your Fync specialist about what might suit you best.
The maximum loan term for a Bridging Loan is 12 months from the settlement of your new home, affording you ample time to prepare your current property for sale. During this period, the loan operates on an interest-only basis. The initial loan size required at this stage is known as Peak Debt. Once you sell your current property, the proceeds from the sale are allocated to pay down the Bridging Loan.
Borrow up to 80% of the new home's value.
Depending on your individual circumstances, you may be eligible to borrow up to 80% of your new home's value, known as the Loan to Value Ratio (LVR). To accurately determine your borrowing capacity for your next property, we recommend consulting with a lender or your dedicated Fync specialist.
Use available equity for your deposit and more.
If you've built up equity in your current property, you might be able to leverage it to cover your new home's deposit. Additionally, you could roll upfront costs, such as stamp duty and legal fees, into your Ongoing Loan if there's enough equity based on the combined values of your current and new homes.
Considerations for a Bridging Loan
Eligibility: To qualify, you must demonstrate the ability to make repayments on both your current and new homes during the bridging period. Lenders may require you to hold savings as a safety net.
Repayment Period: You need to sell and settle your current home, and pay down the Bridging Loan within 12 months. Interest is calculated daily and charged monthly, so the longer your current home takes to sell, the more interest you'll pay.
Market Impact: Fluctuations in the property market may affect the sale price of your current home, which can impact your Ongoing Loan for your new property.
Alternatives to Bridging Loans
While a Bridging Loan is a viable option, it's not the only one:
Altering the Purchase Contract: Depending on your circumstances, adding a "subject to sale" clause to your new home's contract is a possibility. This clause ensures the contract doesn't become unconditional until your current home is sold. Seek advice from a qualified professional, such as your dedicated Fync specialist, before pursuing this option.
Negotiating a Longer Settlement Period: Negotiating an extended settlement period for your new home can provide you with additional time to sell your existing property before your new loan comes into effect, offering greater flexibility.
IS A BRIDGING LOAN RIGHT FOR YOU?
Ultimately, whether or not a bridging loan is right for you will depend on your individual circumstances and financial goals. It's important to carefully consider the pros and cons and seek professional advice before making a decision. Speak to your Fync specialist to learn more about bridging loans and what might suit you best.
*Disclaimer: Please note that the information provided in this communication is for general informational purposes only and should not be construed as professional advice. It is not intended to substitute for personalised financial, legal, or tax advice. Please consult a qualified professional before making any decisions based on the information provided.