Can You Make Your New Home A Reality with Bridging Loans?
Recently updated on January 16th, 2023 at 02:21 pm
A bridging loan can be a great way to finance your new home purchase, even if you haven’t sold your current property. This type of loan allows you to borrow against the equity in your old home to come up with the down payment for your new home.
Bridging loans: what are they?
A bridging loan is a short-term finance used to buy a new property. Bridging loans are usually interest-only, meaning you only need to pay the interest on the loan whilst waiting for your property to sell. This structure is beneficial to borrowers seeking to keep their monthly repayments to a minimum.
Bridging loans can be used for a variety of purposes, including:
- Buying a new home
- Helping to cover the costs of moving
- Paying for renovations on your new home
- Covering the down payment on your new home
- Paying off debts or other obligations on your old home
- Making improvements to your new home before moving in
- Helping you move if you’ve been affected by a disaster, such as a fire or a flood
Like any loan, a bridging loan may be a good option, or equally not suitable to your individual requirements. If you’re considering taking out a bridging loan, it’s important to speak to a financial advisor to ensure it’s the right option for your circumstances.
How bridging loans work
Bridging loans are often used to provide temporary funding for a property purchase before the sale of the borrower’s current home. This type of loan can be helpful for people who need to move quickly or cannot secure traditional financing.
Bridging loans typically have higher interest rates than other types of loans, but they can be a helpful facility for borrowers who would benefit from a fast cash injection and are confident they will be able to sell their current home relatively quickly.
Why bridging loan is a good idea for your new home
A bridging loan can be a great option to meet your financial needs, including:
- Bridging loans are typically short-term loans.
- Bridging loans can be used to cover the deposit on your new home.
- Pending your lender, bridging loans can often be repaid early without penalty.
- Increasingly, bridging loans are available to people with a broad spectrum of credit history (good or bad credit), as long as there is substantial equity in their property.
How to get a bridging loan?
Before applying for a bridging loan, consider:
- The total amount you need to borrow
- The length of time you need the loan
- Your exit strategy (how you plan to repay the loan)
When considering bridging loan in Australia, it’s wise to:
Speak to a mortgage broker or lender about your options
Various bridging loan products are available, and the right product for you will depend on your circumstances. Your mortgage broker is well-paced to help you determine which loan suits your needs.
Compare interest rates, fees and features of different loans
It is important to compare the interest rates, fees and features of different loans before you decide which loan is most suitable for your needs. When comparing loans, you should also consider the length of the loan term. Bridging loans usually have a loan term of up to 12 months, however, some lenders may offer longer terms, up to 24+ months. Also, consider the fees associated with a short-term bridging loan. Be aware that some lenders may charge an arrangement fee, or charge early repayment or exit fee charges.
Apply for the loan and provide supporting documentation
When you apply for a bridging loan, you will need to supply different levels of supporting documentation to prove that you can repay the loan (this will vary from lender to lender). This may include your bank statements, pay slips, tax returns and/ or proof of income. The lender will also typically also want to see your home’s current property valuation and validation of equity.
Meet the eligibility criteria of the lender
Each lender will have different eligibility criteria that’s required to be accepted for the loan to be approved. These criteria are designed to protect both the lender and the borrower, and it helps to ensure that the loan is repaid. Lenders will typically want borrowers to demonstrate a steady source of income and/ or a clear exit strategy to ensure they can repay the loan. Other assessment measures include employment history, credit score and debt-to-income ratio. Once approved for a loan, the lender will release the funds to you.
The benefits of a bridging loan
There are many benefits of a short-term bridging loan, including:
- They are quick and easy to obtain.
- They can be used for various purposes, such as renovations or repairs.
- They have flexible repayment terms.
- They can be secured against your property.
Drawbacks of a bridging loan
There are a few potential drawbacks to be aware of before taking out a bridging loan, which include:
- Higher interest rates. Bridging loans often come with higher interest rates than more traditional forms of financing, so it’s important to factor this into your overall costs.
- Short repayment periods. Most bridging loans need to be repaid within 12 months, so you’ll need to have a plan to repay the loan before taking one out.
- Potential fees. Some lenders may charge additional fees for a bridging loan, so ask about any possible fees before signing the contract.
It’s wise to compare interest rates, fees and terms from multiple lenders to get the best deal possible when applying for a bridging loan. Again, a finance broker is well positioned to help you with this process.
A bridging loan can be a helpful form of finance to those who need to quickly purchase a new home before selling their current one. It’s a short-term loan that’s renowned for an easy application process and fast approval time.
At Mango Mortgages, we offer quick and easy loans, including bridging loans, without all the hassle. Plus, our interest rates are reasonable, so you can borrow what you need and pay it back over time without breaking the bank.
Apply online in minutes and get a decision fast. Once approved, we can have the money deposited into your account the same day or the next. It’s that simple. Don’t wait—apply today!