When to Consider a Bridging Loan in Australia
A bridging loan can be a lifeline for anyone who finds themselves in a tricky property situation. Perhaps you’ve stumbled across the perfect home, but haven’t sold your current property yet, or you need to move quickly for personal or financial reasons. In these situations, a bridging loan can provide the funds you need to secure your dream property and make a smooth transition between homes.
A bridging loan is a short-term finance option that can be helpful in a variety of situations. However, it’s important to understand the pros and cons before you decide if it’s the right option for you. Find out more about bridging loans and learn some factors to consider when deciding if a bridging loan is appropriate for your needs.
What is a bridging loan?
A bridging loan is typically used to bridge the gap between the sale of one property and the purchase of another. This type of loan is secured against the equity in your existing property and is designed to provide you with the funds you need to buy a new property before you have sold your current one.
How does a bridging loan work?
When you take out a bridging loan, you will be borrowing against the equity in your existing property. The amount you can borrow will depend on the value of your current property and the amount of equity you have in it. The loan will be secured against your property, which means that if you are unable to repay the loan, the lender can sell your property to recover the debt.
Bridging loans typically have a short-term repayment period of 6–12 months, although this can vary depending on the lender and your individual circumstances. During this time, you will be responsible for paying the interest on the loan, which can be higher than a traditional home loan. Some lenders may also charge additional fees, such as an establishment fee or an exit fee.
Once you have sold your existing property, you can use the proceeds from the sale to repay the bridging loan. Alternatively, you may be able to refinance the bridging loan into a traditional home loan, although, again, this will depend on your circumstances and the lender’s requirements.
When should you consider a bridging loan?
There are several situations where it may be appropriate to consider a bridging loan in Australia. Here are a few examples:
- When you’re buying a new property before selling your current one
If you’ve found your dream home but haven’t yet sold your existing property, a bridging loan can help you bridge the gap between the two transactions.
- When you’re renovating or building a property
If you’re renovating or building a property, you may need to access funds at various stages of the project. A bridging loan can provide the finance you need to get the project off the ground, with the loan being repaid once the property is completed and sold or refinanced.
- When you’re facing a short-term cash flow issue
If you need short-term funds for personal or business reasons, a bridging loan can provide a flexible, short-term finance option. This can be particularly useful if you need funds quickly and don’t want to go through a lengthy application process.
- When you’re taking advantage of a property investment opportunity
If you’re looking to invest in property and have identified an opportunity, a bridging loan can help you secure the property quickly, before refinancing or selling another property to repay the loan.
Key takeaway
A bridging loan can be a helpful option in certain circumstances. However, it’s important to carefully consider the costs and risks involved, as well as your financial situation, before committing to this type of loan. It’s also a good idea to seek professional advice from a trusted broker or financial advisor and make sure you have a solid repayment plan in place. With the right approach, a bridging loan can be a useful tool to help you achieve your property goals and move forward with confidence.
If you’re considering a bridging loan for your needs, Mango Mortgages is here to help. Our team can help you explore your options and find the best bridging loan to suit your unique circumstances. We pride ourselves on providing personalised, expert advice and support throughout the loan process. Apply online here.
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