Bridging finance is a short-term mortgage used to help you secure your new home while your old home is selling.
A bridge loan is the type of home loan buyers use when they have their eyes on their next perfect piece of property but are unable to purchase it until their old home sells. Bridging finance is the short term solution offered by banks and brokers to help secure a new property as soon as possible.
When will I need this type of loan?
Imagine a small family. They purchased their first home in a cute suburban street. It was a two-bedroom house and over the course of fifteen years this family made small improvements like updating the kitchen and bathroom, attaching an entertaining deck, converting the roof space to usable storage and converting the garage for their eldest child to move into when their small family began to grow to big for the main house.
Now it’s time to upgrade. This family has found the perfect property only a few suburbs away and the owners are looking for a quick settlement. Christmas is looming and all three children are in school, the eldest starting their all-important final years. Their old house has risen in value so they know that when it sells they can comfortably afford their new property. They just can secure the sale until the funds clear from the sale of the first house.
This family apply and receive bridging finance to help them purchase their new dream home immediately while their old house waits for another small family to buy it up.
How does a bridging loan work?
This type of loan is essentially another mortgage. Usually it is interest-only finance which means that while you have the loan you will only have to pay the interest accrued on the principal rather than the principal amount. Once your old home sells then the principal is paid back and you revert to your old mortgage arrangement.
Although this type of finance is usually offered as a single package – the mortgage for the new home plus the loan against the sale of your old house – it is important to remember that is also two mortgages, even if it is only in the short-term. You will accrue interest on both loans which may affect your personal finances until your home is sold.