The Use of a Bridging Loan for Remortgage

Recently updated on February 28th, 2023 at 01:37 pm

Whether you are upgrading or downgrading to a different home, moving houses is rarely easy, especially if funds are limited. So it’s good to have the option of a bridging loan that enables you to buy a new home before you sell your current home.

Learn more about a bridging loan, its features and how it works.

What is a bridging loan?

A bridging loan is increasingly a ‘go-to’ loan when you need short-term funding. It is increasingly popular as it is flexible, convenient and fast.

As the name suggests, a bridging loan helps ‘bridge the gap’ between selling and purchasing properties. Bridging loans are available from a spectrum of trusted lenders, including non-bank, specialist and private lenders in Australia.

Where can you use a bridging loan?

Buying a new property before selling your existing home is a classic example of when a short-term bridging loan can be used. In addition, bridging loans can also be used for.

• Property renovations or repairs

If you have a property that you are planning to sell but needs renovations and repairs, you can get a bridging loan to finance the repairs. The loan is then repaid once the property has been sold.

• Business purposes

A bridging loan can also be used to support business growth and efficiency. Common uses for a business bridging loan are acquiring new stock or equipment, expanding the premise or purchasing a new business.

• Auction purchases

Borrowers often use a bridging loan to purchase a property at auction as a ‘stop-gap’ solution that enables the acquisition, whilst a traditional bank processes the home loan.

• Debt consolidation

A bridging loan can be used to consolidate debts into one lower-interest rate loan.

How does a bridging loan work when remortgaging?

Moving from one home to another often requires a new mortgage for your new home (otherwise known as a ‘remortgage’). Here are two options:

• First-mortgage bridging loan

A first-mortgage bridging loan enables you to pay off the balance on your current mortgage and still have enough money to pay for the down payment or the first mortgage of your new home. This process lets you close your existing mortgage so that you will only need to pay for the new mortgage in the future.

• Second-mortgage bridging loan

A second-mortgage bridging loan provides the funds to cover the new property’s down payment. This means that you will have a second mortgage on top of your first mortgage.

What are the things to consider before getting a bridging loan?

Here are some areas to consider if you’re thinking about applying for a bridging loan:

• Where will you use the bridging loan?

It’s important to be very clear about the purpose, amount, term and repayment plan for any type of loan before applying for finance. A finance broker is well-placed to help you navigate this decision.

• What are the requirements of a bridging loan?

The requirements for a bridging loan will vary from lender to lender. Here is an overview of some common requirements for a bridging loan in Australia:

• Home equity. Generally speaking, the more loan equity, the higher amount you can borrow.
• Current property documents. You will need proof that you currently own the property you want to sell or renovate or that you own the business you’re seeking finance for.
• Exit strategy. You will need to clearly demonstrate how you’ll be able to make repayments comfortably throughout the loan term.
• Sale contract. Some lenders require a copy of a sale contract for your property on sale before approving the bridging loan (though this varies from lender to lender)
• Proof of income and your identification. Again, different lenders require different levels of paperwork, including proof of income.

• Are you eligible to get a bridging loan?

Your finance broker is well-placed to advise you about what types of finance you may be eligible for and will help place you with the most suitable loan and lender.

Will a bridging loan work for you?

Per the above, a finance broker is well-placed to advise you about what types of finance you may be eligible for and will help place you with the most suitable loan and lender.

Where can you get a bridging loan?

There are multiple providers of bridging loans in Australia. Typically, non-bank, specialist and private lenders provide greater flexibility, require less documentation and are faster than traditional lenders. Reach out to Mango Mortgages: a leading provider of bridging loans and short-term business finance in Australia.

Key takeaway

A bridging loan is often used for short-term personal and business requirements. This facility is an attractive alternative for those requiring flexible terms and access to funds quickly.

Contact us at Mango Mortgages about your short-term funding requirements for personal or business use.

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