Home Loan Options for Adelaide Investors and Families: Bridging Home Loans
Bridging home loans are usually required when a property buyer purchases a new home before they have sold their current one.
In other words, it ‘bridges‘ the gap between two properties. You can also apply for a bridging loan if you need to finance the construction of a new home while you are still living in your current property.
Some lenders will not allow a home equity loan if the property being used as security is currently on the market, so a bridging loan will also benefit those in this situation.
Your lender will take security over both your existing property and the one you are buying for the loan until the sale and purchase process is completed.Book a FREE appointment with a professional mortgage broker now!
How a bridging loan works
Bridging loans are usually negotiated as an interest-only loan. This means you will only pay the interest on the loan without making repayments to the principal balance.
By their definition, a bridging home loan is short term. Usually you will have around six months to sell your home if you are purchasing an existing home and up to 12 months if you are building.
Typically, a loan of this nature will only last for a few months.
Capitalising your loan
Some lenders will allow you to capitalise the interest on a bridging loan. Capitalising means you will not be required to make payments on the new loan while you are selling your existing home.
Essentially, it means taking out an entirely new mortgage to pay for your existing one and the new property.
While capitalising a loan is a convenient way to deal with the sale before thinking about paying off a new loan, you will most likely have a slightly higher new loan to cover the accrued costs involved with this option.
You will need to consider if this is the best option for you, but you can always talk to AAA Mortgage Solutions if you have any concerns.
When you do sell your property, the funds are applied to the bridging loan, and anything leftover from the loan becomes your new mortgage.
A new mortgage can be negotiated with your lender as a fixed, variable or split interest rate.
When deciding how much to borrow, you will be able to apply for up to the full amount of a new home as well as any associated costs such as stamp duty or other fees. Typically, loans for your new and existing property cannot exceed 85 per cent of their combined value.
Something to be aware of with bridging loans is that in a slow market, you may have trouble selling your home within the allowed six month time frame. In this case, additional interest on the loan can accrue and you would end up with a new mortgage that could be higher than you expected.
Conversely, a fast sale of your current property will make for ideal bridging loan conditions as there will not be much time for interest on the bridging loan to build up before you start making payments to your new mortgage.
Pre-approval of a bridging loan is just as important as any other mortgage, so be sure to ask for advice from a mortgage expert before starting your property search.
If you have any further questions about a bridging loan, or are unsure if this is the right loan for you, please call AAA Mortgage Solutions on 1300 555 888 today.