Get your dream home with a bridging loan
Life doesn’t always go to plan. Sometimes the timing doesn’t line up, and we find ourselves sitting on the sidelines waiting.
When it comes to snatching up your dream home, you don’t have to wait on the sidelines any longer because of something called a bridging loan.
A bridging loan lets you acquire your new dream home while you’re still in the process of selling your current one. It means far less stress and anxiety and the opportunity to scoop up your dream one.
Bridging loans come in standard options:
- Variable – interest can increase or decrease
- Fixed-rate loan – interest is fixed for a period of time
- Owner-occupied home loan – for the house you intend to live in
- Investment home loan – for investing in residential investment properties
The nuts and bolts of a bridging loan
A bridging loan is a short-term loan with a higher interest, which lets you act immediately instead of waiting for liquid cash from the sale of your current home. It fills the void that emerges between the sale of one house and the acquisition of another.
How to qualify for a bridging loan
Here are 4 things you can do to qualify for a bridging loan:
- Have equity. Generally the more equity you have the better.
- Aim to have an LVR lower than 80%.
- Have a specific time frame – don’t ‘bridge’ for more than 12 months.
- Make sure that buyer contracts have already been exchanged between parties.
How bridging loans work
Lenders will need to do a valuation to determine your existing mortgage minus the sale price of your current home. This will cost between $200 to $250 dollars. They’ll specify your ongoing balance or end debt – then they’ll assess whether you can make the repayments.
When you get a bridging loan, you won’t have to pay back your current mortgage and the bridging loan at the same time. This is great news because most households won’t be able to handle 2 mortgages at once. What happens next is the interest from a bridging loan gets added to your ongoing balance – it means you don’t have to make repayments until your existing property is sold.
Here’s how it works:
Let’s say the existing loan balance on your current home is $300,000. Your new dream home is going to cost $800,000.
Balance of current loan + Cost of new property = Peak debt
$300,000 + $800,000 = $1,100,000
So, your lender charges you interest on the $1,100,000 (peak debt) until you sell your current house. Once you sell, your peak debt returns to a normal mortgage.
The 2 benefits of a bridging loan
- You get to capitalise on interest
If you can’t make the servicing capacity (principal + interest) on both properties, which most Australian can’t, you’ll get some flexibility to help transition into your new home without the burden of two mortgages on your back.
- You get the entire loan covered on your new dream home
Bridging loans allow you to borrow up to 100% of the cost of your new property, including fees. It makes selling your current home way less stressful while you’re transitioning into your new home.
Are you actively scoping out your new dream home? Get ahead of the curve by speaking with a Mortgage House Lending Specialist who can advise you on the best Bridging loan option for you.