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Are you going to keep your existing home and turn it into an investment property, whilst you buy another property to turn into your home?

Are you going to sell your existing home and then buy your next home?

If you are planning to keep your existing home and enter the investment property market, click here to go to our section on Investing in Property.

If you have decided to sell your current home and move into your next home then you may require a Bridging Loan.

A Bridging loan is a short term loan to cover the period between the sale of your current property and the purchase of your next property. The advantage of a bridging loan is that is allows you to buy or build your next home before having to wait for your current home to be sold.

It can be difficult and usually requires a significant amount of luck to arrange both properties to settle on the same day, eliminating the requirement for bridging finance.

1. Chameleon Range of home loans: a new home loan is taken out to cover both the outstanding balance for the existing loan and the purchase price of the new property (plus or minus if you have a deposit or need to borrow additional funds to cover the legal fees). Both properties will be used as security for the loan. Your repayments will now be based on the new, higher home loan amount (peak debt). When the first property is sold, the home loan amount will reduce and your repayments will also reduce to align with the new lower home loan amount (end debt).

Advantages: there is no time restriction to sell your first property

Disadvantages: you have to be able to repay a significantly larger home loan amount until your first property is sold.

2. Advantage Plus Home Loan: a second home loan is taken out for the next home to be purchased. Mortgage repayments on the first home loan continue as normal. You have the option to capitalise interest on the second loan meaning that the interest payments can be deferred, as they are added to the total home loan amount, for up to 6 months for existing dwellings or up to 12 months for a new construction.

Advantages: You are not required to make a mortgage repayment on the second loan for 6-12 months making it a lot easier to manage your cashflow.

Disadvantages: If you choose to not make any mortgage repayments in this time, your interest bill will be higher at the end of loan. Also, if you do not sell your first property within the given time frame, you will also need to commence both principal and interest repayments on the second home loan.

Whilst the option to Capitalise Interest does not require you to make repayments during the specified period, it is highly advised that you try to make any repayment contribution to the new loan as this can greatly reduce the amount of interest to be paid at the end of the loan.

We are happy to discuss your options regarding financing the purchase of your next home with you and show you the best and most cost effective way in doing this. Contact a Mortgage House Home Loan Specialist today.