Bridging Loans, also known as Relocation Loans, allow a borrower to obtain finance for their new home purchase prior to selling their existing home. This provides you with reassurance to be able to attain a suitable new home prior to selling your existing one, or purchase your ideal new home before your current home has been sold or settled.
A bridging loan is a temporary loan that will be ultimately repaid or partially repaid with the proceeds from the sale of your current home. A new loan can be provided to purchase your new property and both properties are used as security until your existing home is sold and settled. Once you have settled your previous home the original loan is paid down.
Most lenders require you to be able to service both loans (also known as ‘peak debt’). In some cases the repayments can be interest only during the peak debt period to reduce your repayments but there is usually a time limit of 6 to 12 months to sell your existing home. In some instances lenders may allow you to capitalise your repayments or pay repayments on the loan portion you will remain with after the bridging period (‘end debt’).
Bridging loans favour borrowers who have a large amount of equity in their property, especially in a slow property market where they may not be able to realise their expecting selling price.
To find out more about bridging loans contact Keypoint now to discuss your options.
The following are advantages related to most bridging loans:
- Allows a borrower to purchase their new home before having to sell their existing one. This may help upgraders who want to ensure that they find an appropriate new home before committing to the sale of their existing home.
The following are disadvantages related to most bridging loans:
- If a borrower’s existing home sells for less than expected, the resulting loan (‘end debt’) may be higher than planned. This can cause issues if a borrower is unable to service their end debt. A higher than expected end debt may also result in lender mortgage insurance (LMI) charges.
- Fees usually apply to bridging loans and package rate discounts are not available on the peak debt.
- There may be time limitations relating to the sale of your existing home (usually limited to 6 to 12 months).