Everything you need to know about bridging home loans
Dec 5, 2016
If you’re looking to buy a new property but are worried you won’t be able to sell your current home in time, you might consider applying for a bridging home loan. A bridging loan exists to help you bridge the gap between selling one property and buying another, so that you’re able to take on a mortgage for your new property. We explain everything you need to know about bridging home loans.
What is a bridging home loan?
Bridging home loans allow you to get a loan on a new property before selling your existing home. They’re helpful if it is taking longer than expected to sell your home, or if you’re building a new home and still need to live in your existing property.
Due to the risk that banks take when offering you a new loan before being able to pay out your current loan, bridging home loans can be expensive. They typically attract high interest rates, so it’s important that you seriously consider whether you need and can afford bridging finance.
What are the different types of bridging home loans?
Your lender can offer you either a single or separate bridging home loan. With a single loan, the lender will take both your existing and your new properties as security. Depending on your lender and the loan arrangement, you will then have a bridging gap of between six to 12 months to sell your current property and pay off your old loan. In most cases, during this time you will only have to make interest-only repayments.
With a separate loan, your lender will offer you a new mortgage for your new property. During this bridging period you won’t need to make repayments on the new mortgage, only on your existing one. However, interest will still be accruing on your new home loan.
How will these repayments affect my budget?
Both types of bridging loans will add significant costs to your day-to-day finances – either now or in the future – so you need to make sure there are not cheaper or more effective options available in your situation. For instance, you could sell your existing home and rent while you look for a new home, rather than owning two homes at once.
Get the right advice
If you think you might need a bridging home loan to purchase your next home, a Choice Home Loans mortgage broker can help. A mortgage broker can talk you through your options to find what is right for you and your situation. Make an appointment online today to speak to one of our friendly brokers.
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