When purchasing an apartment while waiting to sell your existing property, bridging finance can provide the solution you need to secure your new home without missing out on opportunities. This short-term financing option helps Queensland property buyers bridge the gap between buying and selling, ensuring you can move forward with confidence.
What is Bridging Finance?
Bridging finance is a short-term loan designed to help you purchase a new property before selling your existing one. These loans typically have a loan term of 6 to 12 months to sell your existing property, or up to 12 months if your new property is being built. The primary purpose is to bridge the gap between the settlement dates of your current home and your new apartment purchase.
Unlike traditional home loans, bridging loans are structured to handle two properties simultaneously. During the bridging period, you'll manage what's called 'Peak Debt' - the combined loan amount covering both your existing property and the contract purchase price of the new home. Once your existing property sells, you'll transition to 'End Debt', which covers only your new apartment.
How Bridging Loans Work for Apartment Purchases
When applying for bridging finance to purchase an apartment, lenders will assess your borrowing capacity based on your ability to service both loans temporarily. The application process involves providing bank statements, income documentation, and details about both properties.
The bridging loan amount is calculated considering:
- The outstanding balance on your current home loan
- The contract purchase price of the new apartment
- Associated costs like stamp duty and legal fees
- Your loan to value ratio (LVR) across both properties
Lenders mortgage insurance (LMI) may apply if your combined LVR exceeds 80%, though some lenders offer LMI waivers or interest rate discounts for bridging loan applications.
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Should You Buy or Sell First?
The decision between buying or selling first depends on your financial situation and the local property market conditions. Buying your next home involves careful timing considerations, particularly in Queensland's dynamic property market.
Advantages of buying first with bridging finance:
- Secure your desired apartment without time pressure
- Avoid temporary accommodation costs
- Present as a cash buyer to sellers
- Move directly from your current home to your new apartment
Considerations include:
- Higher interest costs during the bridging period
- Pressure to sell your existing property within the loan term
- Potential for interest capitalisation if cash flow is tight
Interest Rates and Loan Features
Bridging loan rates are typically higher than standard home loan interest rates, reflecting the short-term nature and additional risk. You'll encounter both variable interest rate and fixed interest rate options, though variable loan rates are more common for bridging finance.
When calculating bridging loan repayments, consider that many lenders offer interest capitalisation during the bridging period. This means interest charges are added to your loan balance rather than requiring monthly payments, helping manage cash flow while carrying two properties.
Some bridging loan options include:
- Offset account facilities to reduce interest charges
- Flexible repayment options
- The ability to convert to a standard investment loan if your original property doesn't sell within the term
Access to Bridging Loan Options
Simple Lending can help you access bridging loan options from banks and lenders across Australia. Different lenders have varying appetite for apartment purchases, particularly regarding loan to value ratios and property types.
Getting loan pre-approval for bridging finance involves a streamlined application process with many lenders. This pre-approval gives you confidence when making offers on apartments, as sellers often prefer buyers with confirmed financing.
The Application Process
The loan application for bridging finance typically requires:
- Current home loan statements
- Income verification documents
- Property valuations for both properties
- Contract of sale for the new apartment
- Evidence of your existing property being marketed for sale
Many lenders now offer a streamlined application process for bridging loans, recognising the time-sensitive nature of property purchases. The key is demonstrating your ability to service the peak debt period and your realistic timeline for selling your existing property.
Considerations for Queensland Property Buyers
Queensland's property market presents unique opportunities for apartment buyers. First home buyers in Queensland and existing homeowners alike can benefit from bridging finance, though stamp duty implications vary depending on whether the apartment will be your principal residence or an investment property.
When considering bridging finance for an apartment purchase, factor in:
- Body corporate fees and ongoing apartment-specific costs
- Market conditions affecting the sale of your existing property
- Potential rental income if converting your current home to an investment loan
- Your long-term financial goals and property portfolio strategy
Bridging loans offer a valuable solution for Queensland property buyers looking to purchase apartments without the stress of perfect timing between sales and purchases. With proper planning and professional guidance, you can navigate this process confidently and secure your ideal apartment.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can help you purchase your next apartment while managing the sale of your existing property.
