Can You Buy Your Dream Home With a Short-Term Bridging Loan?

Recently updated on January 10th, 2023 at 06:04 pm

A home is a major investment. However, with the current economic conditions, it has become challenging to access traditional finance sources for many borrowers. As a result, Australians are increasingly turning to private lenders, specialist lenders, non-banks and fintechs to obtain finance – including short-term bridging loans to help finance their dream homes.

What is a short-term bridging loan?

A short-term bridging loan is a type of finance that can be used to quickly access funds to help close a new property purchase (funding is often available within a few days of the application being approved). This type of loan can be a great solution for buyers who need to close on a new purchase before their current home sells, or for those who are looking to put a deposit on a property that is not yet listed on the market.

Short-term bridging loans are typically repaid within twelve months and are secured by either the property being purchased or the existing home. While interest rates on these loans are typically higher than traditional mortgages, but the quick turnaround time and flexibility of repayment terms make this type of facility appealing to borrowers seeking quick financing.

How can a short-term bridging loan help you buy your dream home?

A short-term bridging loan can be useful if you’re looking to buy your dream home before your current property has sold. By taking out a short-term loan, you can bridge the gap between the purchase of your new home and the sale of your existing home.

As with all types of finance, there are a few things to keep in mind if you’re considering taking out a short-term bridging loan:

Make sure that you understand the terms of your loan and are comfortable with the repayment schedule.
Taking out a short-term loan will typically result in a higher interest rate than you would pay on a longer term loan, so be sure to factor this into your decision.
Be aware of all fees associated with the loan (including early and late repayment fees).

A finance broker is in an ideal position to help navigate you through this process.

The benefits of short-term bridging loans

Here are some of the key benefits of using short-term bridging loans to finance the purchase of your dream home:

Funds can be quickly accessed – often within days of an approved application
A short-term bridging loan through a private lender, specialist lender, non-bank or fintech is usually much easier than through a traditional lender
Funds can be used to finance the purchase of a property before selling your current home, providing you with extra time to find a buyer
The loan is usually for up to twelve months
Access to funds can be used as a deposit, and as such, speed up the process of buying a home

How do I qualify for a short-term bridging loan?

Qualifying for a short-term bridging loan in Australia varies from lender to lender, though here’s a general overview what you may need:

Equity in your current property: This can be either equity in your home or investment property.
A good credit history: This means that you have a history of making your repayments on time and in full. That said, private lenders, specialist lenders, non-banks and fintechs are increasingly open to providing funding to borrowers with different levels of credit history (including limited to bad credit).
Proof of a stable income: This can be from employment, self-employment, investments or other sources.
Security for the loan: This is usually from a property or another asset.

What are the repayment terms for a short-term loan?

The repayment terms for a bridging loan can be quite flexible, depending on the lender. Some lenders may require that the loan be repaid within a certain time frame, whilst others may allow for more flexibility.

As a general guide, short-term loans in Australia are typically repaid over a period of twelve months. However, the repayment terms may vary depending on the lender and the individual loan agreement. Lenders may also offer various repayment options, such as interest-only payments or capitalised interest (where the loan is paid out at the end of the term). It is important to carefully consider all of the repayment options before choosing a bridging loan – or any type of finance.

Key takeaway

A short-term bridging loan could be worth considering if you need funds to ‘bridge the gap’ between purchasing a new home before your current place is sold.

With Mango Mortgages, buying the home of your dreams is easier than ever before. Our application process is easy and you can apply online. Plus, our interest rates are competitive, our terms are flexible and we’re transparent about all aspects of the loan process.

Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management