How Bridging Loans in Australia ‘Bridge’ the Gap Between Your Current and Future Home
Buying and selling property can be a stressful and time-consuming process. But what if you find the perfect new home before you’ve sold your current one? Or what if you’ve sold your home but the settlement date is after the purchase of your new home? In these scenarios, a bridging loan may be a useful solution to help you ‘bridge’ the gap between your current and future home.
What is a bridging loan?
A bridging loan is a short-term loan that is designed to help you finance the purchase of a new property while you are waiting for the sale of your existing property to settle. It essentially bridges the gap between the purchase of your new home and the sale of your old one. Bridging loans are typically interest-only loans and are secured against your existing property, with the expectation that the loan will be paid back in full once your existing property is sold.
Types of bridging loans
In Australia, there are two main types of bridging loans: closed bridging loans and open bridging loans.
- Closed Bridging Loans
A closed bridging loan is a type of bridging loan that has a fixed end date. This means that you will know exactly when the loan needs to be repaid, usually within six to twelve months. These loans are typically used when you have a definite settlement date for the sale of your existing property and the purchase of your new one.
- Open Bridging Loans
An open bridging loan does not have a fixed end date. The loan will continue until you have sold your existing property and can repay the loan. Open bridging loans are often used when you have not yet sold your existing property and do not know when the sale will take place.
How do bridging loans work in Australia?
In Australia, bridging loans are commonly offered by banks and other lenders, and the terms and conditions of the loan will vary depending on the lender. Some lenders may offer a fixed interest rate, while others may offer a variable interest rate. It’s important to shop around and compare different lenders to find the best deal for your needs.
To be eligible for a bridging loan in Australia, you will generally need to have sufficient equity, a good credit score and a stable income. You will also need to provide evidence of the sale of your existing property, such as a signed contract of sale. The lender will then assess the value of your existing property and your ability to repay the loan, taking into account the sale proceeds from your existing property.
Bridging loans can be used for a variety of purposes, including:
- Purchasing a new property
- Renovating your existing property
- Refinancing your existing home loan
- Financing a property development project
- Financing business operations, such as purchasing inventory or equipment
What are the advantages of a bridging loan?
One advantage of a bridging loan is that it can simplify the home buying process. Rather than having to sell your existing property and then purchase a new property, a bridging loan allows you to purchase your new property first and then sell your existing property at a later date. This can be especially helpful if you’re looking to move quickly and don’t want to miss out on your dream home.
Other advantages of a bridging loan in Australia include:
Bridging loans are flexible and can be tailored to meet your specific needs. This can include choosing the length of the loan, the repayment terms and the interest rate.
Bridging loans can be approved and funded quickly, often within a few days or weeks. This can be particularly useful if you need financing quickly to secure a property or to fund a business operation.
- Easy to access
Bridging loans are typically easier to access than traditional loans as they are often based on the value of your existing property rather than your credit score or income. This can make it easier for borrowers with less-than-perfect credit to get approved.
- No monthly repayments
Bridging loans do not typically require monthly repayments because the loan is usually repaid in full once the existing property is sold. This can help you manage your cash flow during the loan period.
- Customisable loan terms
Bridging loans can be customized to meet your specific needs, including choosing the length of the loan, the repayment terms, and the interest rate. This can help you find a loan that is affordable and fits your financial situation.
- Potential cost savings
Bridging loans can help you avoid costly penalties or fees that may be associated with the delayed settlement of a property. By bridging the gap between the purchase and sale of a property, you may be able to save money in the long run.
Tips for getting a bridging loan
Getting approved for a bridging loan can be challenging, as the process and requirements vary from lender to lender. However, there are things you can do to increase your chances of success. Here are some tips for getting approved for a bridging loan:
- Improve your credit score. Your credit score is one of the most important factors that lenders consider when deciding whether to approve you for a loan. Make sure that your credit score is in good shape by paying all of your bills on time, reducing your credit card balances and correcting any errors on your credit report.
- Provide adequate documentation. Lenders will require you to provide a range of documents, including proof of income, tax returns, bank statements and more. All of these documents should be ready and up to date.
- Choose the right lender. Not all lenders offer bridging loans, and those that do may have different criteria for approval. So find a lender who specialises in bridging loans and that has a track record of approving similar loans to borrowers like you.
- Be realistic about your repayment ability. Bridging loans are a short-term financing option, and they can be more expensive than traditional loans. Before applying for one, be sure that you have a realistic plan for repaying the loan. Also, consider the impact that the loan will have on your overall financial situation.
If you’re looking to purchase a new property before the sale of your existing property has settled, a bridging loan can be a useful tool to help you ‘bridge’ the gap between your current and future home. With flexible terms, fast approval and funding, and a variety of uses, bridging loans can provide the financial support needed to make your property or business dreams a reality.
Mango Mortgages is a leading provider of bridging loans and short-term business finance in Australia. We require minimal documentation and no credit check or income assessment. We also offer flexible underwriting. Apply online here.