Top tips to bridge the gap when buying an apartment

When you've found the perfect apartment in Victoria's local property market, timing becomes everything. Should you buy or sell first? This common dilemma faces many property buyers, particularly when market conditions don't align with your needs. Bridging finance offers a solution to bridge the gap between purchasing your new apartment and selling your existing home.

Understanding Bridging Finance for Apartment Purchases

Bridging finance represents a short-term loan designed specifically for buyers who need to purchase their new property before selling their current home. Unlike traditional home loan or investment loan structures, bridging loans provide immediate access to funds, enabling you to secure that apartment without waiting for your existing property to sell.

These arrangements typically involve two key debt positions:

• Peak Debt: The maximum loan amount when you own both properties simultaneously, calculated using the contract purchase price of the new home plus your existing mortgage balance
• End Debt: The remaining loan amount after selling your original property, which converts to a standard mortgage on your new apartment

How Bridging Loans Work in Practice

When applying for a Bridging Loan, lenders assess your borrowing capacity based on your ability to service both properties during the bridging period. The application process requires standard documentation including bank statements, income verification, and property valuations.

Most Bridging Loan options offer flexible structures:

1. Interest Capitalisation: Monthly repayments on the new property can be capitalised (added to the loan balance) during the bridging period
2. Loan Term: Usually 6 to 12 months to sell existing property, extending to 12 months if new property is being built
3. Settlement Flexibility: Allows you to settle on your apartment purchase immediately while marketing your current home

Interest Rates and Loan Structure Options

Bridging Loan Rates typically sit higher than standard mortgage rates, reflecting the short-term nature and increased risk for lenders. You'll encounter both variable interest rate and fixed interest rate options, though variable loan rates are more common for bridging arrangements.

When calculating Bridging loan repayments, consider:

• The loan interest rate applied to your peak debt position
• Interest rate discounts that may apply based on your overall relationship with the lender
• Whether you choose interest-only payments or principal and interest during the bridging period
• Potential for an offset account to reduce interest charges on your existing mortgage portion

Loan to Value Ratio and Lenders Mortgage Insurance

Most lenders require a loan to value ratio (LVR) of 80% or less to avoid lenders mortgage insurance (LMI) on bridging arrangements. However, some lenders offer higher LVR options up to 95%, though this typically incurs LMI costs on the total Bridging Loan amount.

For apartment purchases specifically, lenders may apply different LVR criteria due to:

• Apartment-specific lending policies
• Building height restrictions
• Strata management considerations
• Location and development factors

Getting Pre-Approved for Your Bridging Loan

Loan pre-approval becomes crucial when purchasing apartments in competitive markets. A streamlined application process through experienced brokers who access Bridging Loan options from banks and lenders across Australia can provide significant advantages.

The pre-approval process typically involves:

1. Assessment of your financial situation including income, expenses, and existing debt
2. Valuation of your current property (proposed security)
3. Review of the apartment purchase contract and associated costs like stamp duty
4. Confirmation of your borrowing capacity for the peak debt scenario
5. Structuring the loan to optimise your transition from bridging to standard mortgage

Considerations When Buying an Apartment with Bridging Finance

Apartment purchases through bridging finance require careful consideration of market timing and carrying costs. Unlike houses, apartments may have different selling timeframes and market dynamics that affect your exit strategy.

Key factors include:

• Current market conditions for apartment sales in your area
• Seasonal variations in apartment demand
• The realistic timeframe for selling your existing property
• Your financial capacity to service both properties if the sale takes longer than expected
• Exit costs including real estate fees, legal costs, and potential capital gains tax implications

Making Your Decision

Bridging finance provides flexibility for buyers who need to act quickly in the apartment market. While interest rates are higher than standard loans, the ability to secure your ideal apartment without losing it to other buyers often justifies the additional cost.

Consider bridging finance when:

• You've found an apartment that meets all your criteria
• Your current property is likely to sell within 6-12 months
• You have sufficient income to service the bridging arrangement
• The apartment market conditions favour buyers who can act quickly

Successful bridging arrangements require careful planning, realistic timeframes, and professional guidance to structure the finance appropriately. Working with experienced mortgage brokers ensures access to competitive rates and terms from multiple lenders while providing ongoing support throughout the process.

For Victorian property buyers, bridging finance opens opportunities that might otherwise be missed due to timing constraints. Whether you're buying your first home or considering bridging loans for first home buyers, understanding these options 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 determine if this solution aligns with your property goals.