When you find your dream property but haven't sold your current home yet, emergency property purchase funding through bridging finance can be the solution. For Victorian property buyers, understanding bridging loan options can make the difference between securing that perfect property or missing out entirely.
What is Bridging Finance?
Bridging finance helps bridge the gap between buying a new home and selling your existing property. These short-term loans provide emergency property purchase funding when you need to act quickly in the local property market. The bridging loan amount typically covers the deposit and purchase costs for your new property while you continue to own your current home.
How Bridging Loans Work
When applying for a bridging loan, lenders calculate two key figures:
• Peak Debt: The total amount owed when you own both properties, including your existing home loan plus the contract purchase price of the new home
• End Debt: The remaining loan amount after selling your existing property
The loan term usually ranges from 6 to 12 months to sell your existing property, with extensions up to 12 months if your new property is being built. During this period, many lenders offer interest capitalisation, meaning you don't make principal and interest repayments - instead, interest is added to the loan balance.
Should You Buy or Sell First?
This common dilemma affects many property buyers. Selling first provides certainty about your financial situation but may leave you without a home temporarily. Buying first through bridging finance allows you to secure your new property without the pressure of finding temporary accommodation, but requires careful consideration of your borrowing capacity.
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Understanding Bridging Loan Rates and Costs
Bridging loan rates are typically higher than standard home loan interest rates, reflecting the short-term nature and increased risk. You might encounter:
• Variable interest rates that fluctuate with market conditions
• Fixed interest rate options for budget certainty
• Interest rate discounts based on your loan to value ratio (LVR)
• Additional costs including stamp duty, lenders mortgage insurance (LMI), and application fees
Calculating bridging loan repayments involves considering both your existing mortgage and the new loan. Many borrowers benefit from offset account facilities to minimise interest charges.
The Application Process
The streamlined application process for bridging loans typically requires:
• Bank statements showing your financial position
• Property valuations for both existing and new properties
• Evidence of your ability to service the loan
• Documentation of your plan to sell the existing property
Getting pre-approved can strengthen your position when making offers. Loan pre-approval demonstrates to vendors that you have secure funding arrangements.
Bridging Loan Options Available
You can access bridging loan options from banks and lenders across Australia, each offering different features:
• Home Loan Integration: Some lenders integrate bridging finance with your ongoing home loan
• Investment Loan Compatibility: If purchasing an investment property, bridging finance can work alongside investment loans
• LMI Considerations: Depending on your LVR, you may need to pay lenders mortgage insurance
Who Should Consider Bridging Finance?
Bridging finance suits buyers who:
• Need to act quickly in competitive property markets
• Want to avoid temporary accommodation costs
• Have identified their ideal property before selling
• Can service the additional loan repayments if needed
• Have a realistic timeline for selling their existing property
For those just starting their property journey, bridging loans for first home buyers may have different considerations and requirements.
Making the Right Decision
Before committing to bridging finance, consider:
• Your current financial situation and borrowing capacity
• The local property market conditions for selling your existing home
• Whether you can afford both properties if your sale takes longer than expected
• Alternative options like longer settlement periods
If you're looking to expand your property holdings, understanding how to expand your property portfolio can provide valuable insights.
Working with Professionals
Navigating bridging finance requires expertise in both lending and property markets. A qualified mortgage broker can help you access bridging loan options from multiple lenders, compare interest rates, and structure the loan to suit your specific circumstances.
They can also assist with getting loan pre-approval and ensuring your application meets lender requirements for a smooth settlement process.
Bridging finance can be an effective solution for emergency property purchase funding, but it requires careful planning and professional guidance. Understanding the costs, risks, and benefits helps you make informed decisions about your property purchase strategy.
Call one of our team or book an appointment at a time that works for you to discuss your bridging finance options and find the right solution for your property purchase needs.
