Do you know bridging loans can secure auction properties fast?

Understanding Bridging Finance for Auction Properties

Purchasing property at auction in the Northern Territory can be both exciting and challenging. Unlike traditional property purchases, auctions require immediate settlement terms and cash deposits on the day. This is where bridging finance becomes invaluable for buyers who need to secure auction properties quickly.

Bridging loans are short-term loans designed to bridge the gap between selling your existing property and buying a home at auction. These financial solutions allow you to purchase immediately while giving you time to complete the sale of your current property.

How Bridging Loans Work for Auction Purchases

When you're at an auction, successful bidders typically need to pay a deposit (usually 10% of the contract purchase price of the new home) immediately and settle within 30-90 days. A bridging loan provides the funds needed to meet these tight deadlines.

The loan structure involves two key figures:

• Peak Debt: The maximum amount borrowed when you own both properties
• End Debt: The remaining loan balance after selling your existing property

This arrangement means you can secure your dream property at auction without waiting for your current property to sell first.

Key Features of Bridging Loans

Bridging loan options from banks and lenders across Australia typically offer:

• Loan term usually 6 to 12 months to sell your existing property
• 12 months if new property is being built (for off-the-plan purchases)
• Interest capitalisation options to manage cash flow
• Variable interest rate or fixed interest rate loan options
• Access to an offset account to reduce interest costs

Calculating Bridging Loan Costs

Understanding the costs involved is crucial for your financial planning. The bridging loan amount depends on several factors:

1. Loan to value ratio (LVR) of both properties
2. Your borrowing capacity and financial situation
3. Whether you need lenders mortgage insurance (LMI)
4. Available interest rate discounts

Most lenders will assess both properties and your capacity to service the peak debt during the bridging period. Some borrowers may qualify for LMI waivers or access no LMI loans depending on their equity position.

The Application Process

Applying for a bridging loan requires preparation, especially when targeting auction properties. The streamlined application process typically involves:

• Loan pre-approval before attending auctions
• Providing bank statements and income documentation
• Property valuations for both existing and target properties
• Assessment of your local property market knowledge

Getting pre-approved gives you confidence at auctions and demonstrates to vendors that you're a serious buyer with confirmed finance.

Should You Buy or Sell First?

This common dilemma affects many property buyers in the Northern Territory. The decision depends on your:

• Current equity position
• Risk tolerance
• Local property market conditions
• Available bridging loan options

For auction purchases, bridging finance often provides the only viable solution, as you cannot make your bid conditional on selling your existing property.

Managing Interest Rates and Repayments

Bridging loan rates are typically higher than standard home loan or investment loan rates due to their short-term nature and increased risk. You'll encounter:

• Variable loan rates that can fluctuate during the loan term
• Fixed interest rate options for predictable costs
• Interest capitalisation to defer repayments until property sale

Calculating bridging loan repayments involves considering the loan interest rate on the peak debt amount and planning for the transition to end debt once your property sells.

Additional Costs to Consider

Beyond the interest rate, factor in:

• Stamp duty on the new property purchase
• Valuation and legal fees
• Early exit fees if applicable
• Potential holding costs for both properties

These costs should be included in your overall budget when determining if bridging finance suits your situation.

Getting Started with Bridging Finance

Before attending your first auction, ensure you have:

1. Loan application submitted and approved
2. Understanding of your borrowing capacity
3. Clear picture of peak debt and end debt scenarios
4. Access to funds for auction deposit and stamp duty

Working with experienced mortgage brokers who understand the Northern Territory market can help you access bridging loan options from banks and lenders across Australia and find the most suitable terms for your situation.

Bridging finance can be the key to successfully purchasing your dream property at auction. With proper planning and the right loan structure, you can compete confidently at auctions while managing your financial transition effectively.

Call one of our team or book an appointment at a time that works for you to discuss your bridging loan options and get pre-approved for your next auction purchase.