Many Australians have difficulty dealing with the financial gap caused by their decisions to buy additional properties whilst trying to sell the ones they have. Due to this, they often look for financing that will allow them to bridge the gap. The good news is that many lenders now offer bridging loans to those needing them.
If you need a bridging loan, choosing a reliable lender who can help you achieve your goals is important. You also need to learn more about how a bridging loan works so you’ll know what to expect when you apply for it.
What is a bridging loan?
A bridging loan is a short-term loan that can be used to cover the cost of purchasing a second property. This loan gives you more time to sell your existing property even if a mortgage is still attached to it. Technically, the loan provides a financial ‘bridge’ that provides a buffer between selling your property and buying a new one.
How do bridging loans work?
When you decide to avail a bridging loan, the lender will take over your existing property’s mortgage and finance the purchase of a new one. The total loan amount is commonly referred to as the peak debt. Typically, this includes your new home’s purchase price, other purchase costs like legal fees, lenders’ fees, stamp duty and your existing home’s loan balance.
Generally, the bridging loan’s minimum repayments are calculated using an interest-only basis. In most cases, the interest is accrued and added to the current peak debt until your existing home is sold.
As soon as your first property is sold, the sale’s net proceeds are used to pay a portion of the peak debt. As a result, the remaining amount you owe the lender becomes your end debt. This debt is commonly repaid, just like a standard mortgage product.
What are the benefits of bridging loans?
Many Australians get bridging loans because they offer a long list of benefits. The most common of these include the following.
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Convenience
A bridging loan can be a very convenient way to finance the purchase of a new property, primarily if you cannot obtain a traditional mortgage. These loans are typically shorter in term than a conventional mortgage, so they can provide the ideal solution for those who need to move quickly.
In addition, a bridging loan can be used to finance the purchase of a property that is not yet completed. This can be a significant advantage if you are looking to buy a new home before your current one is sold.
A bridging loan could also be the ideal solution if you need to raise finance quickly. Bridging loan lenders are typically able to provide funds within a few days, so you can get the money you need when you need it.
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Flexibility
Flexibility is one of the key advantages of bridging loans. This type of loan can be used for many purposes, including purchasing a new home, renovating an existing property or investing in a commercial project.
Furthermore, bridging loans can be tailored to suit your specific needs and requirements. You can choose the loan term, the interest rate and the repayment schedule to suit your circumstances. This flexibility makes bridging loans an attractive option for many borrowers.
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Prevents financial loss
A bridging loan can be a valuable tool for preventing financial loss in Australia. If you are planning to sell your property, but the sale has not yet been finalised, a bridging loan can help you cover the costs of your mortgage payments and any other associated costs. This type of loan can also be used if you need to make repairs to your property before it is sold.
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No excessive and additional fees
One of the major advantages of bridging loans is that they often come with no additional fees. Although they come with higher interest rates, the loan can be paid back in a short period, and the interest rate is controlled. Also, there’s no need for you to worry about the rising monthly rates and interest costs. Instead, you can expect your lender to provide a more precise interest structure and offer a flexible way to pay your loan interest.
What are the common sources of bridging loans?
There are a few sources of bridging finance in Australia, including the following.
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Banks
Not all, but several banks in Australia are offering bridging loans to those who need these. Typically, they offer higher interest rates for this type of loan and prioritise those with excellent bank histories.
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Specialised bridging loan providers
These lenders are known for offering more competitive rates and conditions than banks.
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Private lenders
Another source of bridging finance is through private lenders. These are usually individuals or small groups of investors who are willing to lend money at a higher interest rate than banks but with fewer conditions attached. Private lenders can be a good option for borrowers who cannot secure finance from a bank or other traditional lenders.
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Family and friends
Finally, bridging finance can also be obtained through family and friends. This is usually a last resort option for borrowers as it can strain relationships if not managed properly. However, if you have family or friends willing to lend you the money you need, this can be a good option for bridging finance.
Takeway
Securing a bridging loan is an ideal solution when you decide to buy a new property whilst looking for a buyer for the one you currently own. However, it is best to secure this type of financing from a reputable lender. Choose a loan provider who is willing to provide you with competitive loan rates and a flexible repayment scheme.
