Found your dream home, but yet to sell your current one? Here’s how bridging finance could save you thousands.
What is bridging finance?
Bridging finance is a loan that covers the time between buying a new property and settling on the sale of your existing one. This is an additional short-term loan (usually lasting up to six months) that you take out on top of your current home loan until the property is sold and the loan can then be paid off and closed.
Is bridging finance a good idea?
In a perfect world, you’d sell your existing home and buy a new home on the same day. However, this is rarely the case and the reality is that there’s a huge amount of uncertainty in the housing market.
A bridging loan provides you with flexibility and helps reduce the stress of trying to match settlement dates. In some cases, you can also add some of the upfront costs of buying a home (stamp duty, inspection fees etc) to your bridging loan.
It is important to know, however, that bridging finance can only be used if you have equity in your current house. The maximum LVR (Loan to Value Ratio) across both properties needs to be 80% or less.
The benefits of bridging finance:
- You can spend more time selling your house for a higher price
- You can cover the full purchase price PLUS purchasing fees
- Repayments during the bridging loan can be capitalised to your loan, which means you don’t need to make monthly repayments
- You only have to move once. You can purchase your new home, move in, and then sell your previous home without having to rent in between (or move in with the in-laws).