Is a bridging loan right for you?
Recently updated on January 11th, 2023 at 11:27 am
Are you looking for a loan to purchase a new home before selling your current one? Or do you want to insert a cash injection into your business to smooth out cash flow? Then, a bridging loan could be worth considering.
That said, when taking out any type of finance, there is a lot to assess and it can be hard to know if a bridging loan is right for you and your circumstance. Your finance broker is well-placed to help you with this decision.
What is a bridging loan?
A bridging loan is usually a short-term loan that helps ‘bridge the gap’ until longer-term finance becomes available. It is also known as bridging finance, bridge loan, short-term bridging loan or a swing loan.
A bridging loan is often secured on property and often provides access to funding within days.
There are many types of financial institutions that provide bridging loans, including banks, private lenders, specialist lenders and fintechs. A leading bridging finance specialist lender in Australia is Mango Mortgages – which provides bridging loans for personal or business use.
What is the benefit of a bridging loan?
A bridging loan can be a great option for borrowers seeking short-term financial assistance for personal or business use. For example, a bridging loan is commonly used by borrowers who want to get finance to purchase a new property before selling their existing home.
There are many benefits of getting a bridging loan including:
- Fast and easy to obtain: Bridging loans can be approved in as little as 24 hours, so they can be a good option if you need to obtain finance quickly.
- Flexible: Bridging loans can be used for a broad range of purposes, such as refinancing an existing loan, purchasing a new property or renovating your home, to name a few.
- Competitive interest rates: Bridging finance are renowned for having lower interest rates than other types of finance, such as credit cards or personal loans.
- Extra repayments without penalty: Increasingly, lenders that provide bridging loans will allow you to make extra repayments without penalty, to support being able to pay off the loan sooner.
What are the cons of a bridging loan?
It’s wise to discuss any form of finance with your finance broker – preferably in conjunction with an accountant to weigh up the pros and cons of any loans. In particular, be sure to understand:
- Interest rates: The interest rates on bridging loans may be higher than traditional home loans because they’re considered a higher risk by lenders.
- Repayment terms: Read the fine print to include repayment conditions and terms.
- Early termination fees and break costs: Some lenders may charge an early termination fee to switch a loan to another lender – particularly if it’s during a fixed interest period.
How hard is it to get bridging finance?
Bridging finance is increasingly available through the non-bank, private lending and specialist lending sectors. Each lender will have a different application process and credit assessment process. They will also vary in terms of loan duration, interest rates, documentation required, credit history and credit score assessment, and whether the loan is for personal or business use.
For a secured bridging loan, you will be required to have equity in an existing property. This could be your home or investment property. The equity you have will determine how much money you can borrow from the lender.
To qualify, you’ll need a substantial amount of equity in your house if you want to borrow against it. It’s important to have a clear exit strategy in mind before taking out a bridging loan – keeping in mind that this type of loan is meant to be temporary, so you’ll need to have a plan in place for how you’ll repay the loan to present to the lender.
What is the interest rate on bridging finance?
The interest rate on bridging finance in Australia is variable and depends on the market, as well as the lender’s assessment criteria and risk appetite. It’s important to compare rates from different lenders before applying for a loan. Again, a finance broker is in an ideal position to help you navigate this process.
A secured bridging loan may be worthwhile considering if you need finance quickly and you have equity in your home. However, it’s important to consider your financial circumstances, including your income, credit score, use of funds and loan term before applying. As mentioned above, a finance broker is in an ideal position to help you navigate this process. Mango Mortgages is one of the leading bridging loan providers in Australia. Contact us today to discuss your options.