Bridging Finance in Australia
Are you financially trapped between the purchase of a new home and the sale of your existing one?
This is a common predicament that many homebuyers find themselves in, especially in competitive real estate markets like Melbourne. Fortunately, bridging finance can provide a solution to this challenge. At ARG Finance, we specialize in bridging finance Melbourne and can assist you in navigating this complex financial situation, keeping you well-informed every step of the way.
What is Bridging Finance?
Bridging finance, also known as a bridging loan, is a short-term loan that helps homebuyers “bridge” the gap between the purchase of a new property and the sale of their existing one. It allows you to access the equity in your current home to fund the purchase of a new property before your current home is sold. Bridging loans are typically more expensive than traditional home loans due to their short-term nature and higher risk for lenders. However, they can be a valuable tool for homebuyers who need to move quickly or who have found their dream home before selling their current one.
TYPES OF BRIDGING LOANS
There are two main types of bridging loans available:
- Closed Bridging Loans
- Open Bridging Loans
Closed bridging loans are designed for homebuyers who have already exchanged contracts on the sale of their existing property. The repayment date for the bridging finance is pre-agreed upon before finalizing the loan, providing a clear timeline for exiting the loan. This type of loan is less risky for lenders as there is a definite date for repayment.
Open bridging loans, on the other hand, are suitable for homebuyers who have found their dream property but have not yet sold their existing home or set a definite date for the sale. The standard limit for an open bridging loan is twelve months, but banks may negotiate an extension if needed, provided the borrower continues to pay interest during the repayment period and the property market remains stable. Open bridging loans are riskier for lenders as there is no set date for repayment, which can result in higher interest rates for the borrower.
When & Why Consult a Mortgage Broker for Bridging Finance Melbourne?
Selling a property can be a lengthy process, and delays in receiving funds from the sale are not uncommon. This is where a bridging loan for house purchase can help bridge the financial gap. However, bridging loans are different from traditional home loans or construction loans and come with their own set of complexities. Before embarking on a bridging loan, it’s essential to consult with experienced bridging finance brokers who can guide you through the process and help you make informed decisions.
At ARG Finance, our knowledgeable bridging finance Melbourne brokers provide invaluable advice on various factors, such as bridging loan rates, while also clearing any doubts you may have about bridging loans and their benefits during the home buying process. As a well-established bridging finance company, we have the expertise to help you navigate this complex financial landscape.
Qualifying Requirements for Bridging Loan Finance
To qualify for bridging finance for property, you must have sufficient equity in your existing home. Insufficient equity is a common reason why people struggle to sell their current property, as the interest they pay on the bridging loan can accumulate significantly over time. Lenders assess your equity position and your ability to repay the loan when determining your eligibility for bridging finance.
Repayment Calculations for Bridging Loans
During the sale process of your existing home, minimum repayments on a bridging loan are usually calculated on an interest-only basis. Depending on your lender, you may have the option to capitalize all repayments until the sale is completed. However, it’s crucial to keep in mind that capitalizing repayments will increase your peak debt and, consequently, the overall interest you will pay.
To minimize interest charges, it’s recommended to make repayments whenever possible. This strategy helps reduce the amount added to your loan if you encounter difficulties during the sale of your property. By making regular repayments, you can limit the accumulation of deferred repayments and keep your loan balance under control.
Our Basic Loan Repayment Calculator can help you estimate your potential minimum repayments and anticipate any changes in the near future. This tool provides valuable insights into bridging loan rates and helps you weigh the pros and cons of different repayment scenarios.
Making Repayments on Your Bridging Loan
Your loan serviceability is assessed based on your ability to repay the end debt. Lenders may offer you the choice to either capitalize your repayments by adding them to the total loan amount or continue making regular repayments. Continuing to make repayments prevents the total loan amount from ballooning and limits the amount of additional interest charged.
Limitations of Bridging Finance
When taking out a bridging loan, you typically have about six months to sell your existing property. If your new property is under construction, this timeframe may be extended to 12 months. If you are unable to sell your property within the agreed-upon timeframe, the loan will be reviewed, and new arrangements may be put in place. It’s essential to have a clear understanding of these limitations and plan accordingly to avoid any financial stress or complications.
Benefits of Bridging Loans for House Purchase
Despite the higher costs and shorter timeframes associated with bridging finance, there are several benefits to consider:
- You can confidently search for a new home without having to wait for the settlement of your existing property.
- You have the flexibility to choose between principal and interest or interest-only repayments, depending on your financial situation.
- The proceeds from the sale of your existing home can be used to reduce the balance on your bridging loan following settlement.
- Many bridging loans allow for unlimited lump sum payments, giving you the opportunity to pay off your loan faster and save on interest.
[readmore]
- You can purchase a new property without the pressure of having to sell your existing property first.
- If you are building a new property, you can continue living in your existing home until construction is completed.
- The six-month term of a bridging loan reduces the pressure to sell your existing property quickly, allowing you to secure a better price.
Considerations Before Applying for Bridging Finance Melbourne
While bridging finance can be a valuable tool for homebuyers, it’s essential to carefully consider your options before applying for a bridging loan. Some key factors to keep in mind include:
- Interest Rates: Bridging loan rates are typically higher than traditional home loan rates due to the short-term nature and higher risk for lenders. Make sure to factor in the cost of interest when assessing the feasibility of a bridging loan.
- Repayment Terms: Understand the repayment terms of your bridging loan, including whether you have the option to make interest-only payments or if you’ll be required to make principal and interest repayments. Consider how these repayment terms will impact your cash flow and overall financial situation.
- Loan Term: Bridging loans are short-term loans, typically lasting between six to twelve months. Ensure that you have a realistic plan in place to sell your existing property within this timeframe to avoid any financial stress or the need to renegotiate the loan terms.
- Exit Strategy: Before applying for a bridging loan, have a clear exit strategy in place. This may involve having your existing property appraised, setting a realistic sale price, and working with a reputable real estate agent to market your property effectively.
- Alternative Options: Consider alternative options, such as selling your existing property before purchasing a new one or renting temporarily while you search for your dream home. While these options may not be ideal, they can help you avoid the higher costs and risks associated with bridging finance.
Bridging finance can be a valuable tool for homebuyers who need to bridge the financial gap between the purchase of a new property and the sale of their existing one. By working with experienced bridging finance brokers at ARG Finance, you can navigate the complexities of bridging loans and make informed decisions that align with your financial goals.
Our team of bridging finance Melbourne experts is dedicated to providing personalized advice and support throughout the entire process, from assessing your eligibility for a bridging loan to finding the most competitive bridging loan rates. We understand that every homebuyer’s situation is unique, and we take the time to understand your specific needs and circumstances.
If you’re considering bridging finance for property in Melbourne or the surrounding areas, don’t hesitate to contact ARG Finance today. Our knowledgeable brokers are here to help you bridge the gap between your current home and your dream property, ensuring a smooth and stress-free transition. With our expertise and guidance, you can confidently navigate the complex world of bridging finance and achieve your homeownership goals.
Explaining the Loan Process
1 STEP ONE
When you take out bridging property finance, the lender will take over the mortgage of your existing property while also financing the purchase of the new property. The amount of your commitment is determined by adding the value of your new home to your outstanding mortgage of the existing home, after which the approximate selling price of the existing home is subtracted. The balance is called your “ongoing balance” and depicts the original amount of your bridging loan.
2 STEP TWO
The next step is to calculate the amount of money that needs to be borrowed. The total amount that is borrowed is called the “peak debt” which will include the loan balance on your existing home, the contract purchase price of the new home, and any purchase costs such as stamp duty, legal fees and lender’s fees.
3 STEP THREE
The minimum repayments on the bridging loan will generally be calculated on an interest-only basis. In many cases, this interest may be capitalised until the existing home is sold and added to the peak debt.
4 STEP FOUR
The peak debt is reduced by using the net proceeds of the sale, which is obtained by subtracting any sale costs such as selling agent’s fees from the sale price after the existing property is sold. The remaining arrears plus any capitalised interest becomes the “end debt”. The end debt is paid as a regular mortgage product.
5 STEP FIVE
Your residential bridging finance is approved. Heave a sigh of relief and make the jump to your new home. You are all set to go!
Frequently Asked Questions
?
A bridging loan is a short-term loan that helps homebuyers “bridge” the financial gap between the purchase of a new property and the sale of their existing one. It allows you to access the equity in your current home to fund the purchase of a new property before your current home is sold, giving you the flexibility to move quickly when you find your dream home.
?
Closed bridging loans are designed for homebuyers who have already exchanged contracts on the sale of their existing property, with a pre-agreed repayment date. Open bridging loans are suitable for homebuyers who have found their dream property but have not yet sold their existing home or set a definite date for the sale. Open bridging loans typically have a standard limit of twelve months and may have higher interest rates due to the increased risk for lenders.
?
Consulting with an experienced bridging finance broker is essential when considering a bridging loan for house purchase. A knowledgeable broker can provide invaluable advice on various factors, such as bridging loan rates, and help clear any doubts you may have about the process. They can guide you through the complexities of bridging finance, help you assess your eligibility, and assist you in making informed decisions that align with your financial goals. Working with a bridging finance broker can help ensure a smooth and stress-free experience when bridging the gap between your current home and your dream property.
Get in Touch with ARG Finance Today
If you’re looking for a trusted bridging loans consultant, get in touch with ARG Finance. Call us on 1300 511 655 or send an email to [email protected] for expert advice.
Our Panel of Lenders
