Bridging loans

One of the big dilemmas many homebuyers face when searching for their dream home is: should you buy before you sell or sell before you buy?Each option comes with its own challenges. If you choose to sell first, you have a time frame (often tight) to find your ideal home quickly. This can lead to rushing through a decision and settling for a property that you don’t love just to find a place to live. You may even need to find temporary accommodation, adding to the stress of another move and new expenses.On the other hand, if you decide to buy before selling, you could be paying two mortgages or going through the pressure of quickly selling the property where you are currently living in to avoid financial stress. Not knowing how much your property will sell for, or how long it will take to sell it, will create another layer of stress.This is where a bridging loan can be a great solution, offering flexibility during this transitional period.

What is a bridging loan? 

A bridging loan is a short-term loan (between 6 and 12 months) that enables you to purchase a new property while you are waiting for the sale of your existing property so you can take your time to get the best deal on both transactions.

Bridging loans can also be used when building a new home while you live in your current home.

Benefits of a bridging loan

Some of the key benefits of applying for a bridging loan are: 

• Quick access to funds to secure your dream home 
• The flexibility to buy your dream home, without selling your existing one first
• Avoiding temporary living expenses, extra moves and additional hassles 
• Additional time to prepare your property for sale. 

How does a bridging loan work?

When you take out a bridging loan, the lender usually takes over the total amount of the balance of the loan on your existing property plus the purchase price (including costs like stamp duty, legal and lenders fees) of your new property purchase minus any cash deposit you contribute. This is called the “Peak Debt”.

The minimum repayments on a bridging loan are usually interest-only, meaning you only pay the interest during the loan period. In many cases, this interest is added to the loan balance until your current home is sold.

When you sell your first property, the money left after paying sale costs (like agent fees) is used to pay down the loan. The remaining amount becomes the "End Debt," which is then repaid as a standard mortgage product from that point forward.

Get tailored advice

If you’re considering a bridging loan, it’s important to assess your unique financial situation. Our experienced brokers are here to help you and provide you with the best options available for your specific situation, offering a personalised solution that suits your needs. 

If you’d like to find out more, we can guide you through the process and help you make informed decisions to help you achieve your financial goals with confidence.

Call Mortgage Choice Melbourne on 03 8762 4050 or book an appointment.  

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