Bridging Home Loans

What are bridging home loans?

Bridging finance, or a bridging loan, is a short-term mortgage solution that enables you to finance a new property whilst you are selling your current property.

How do bridging home loans work?

Consider it a temporary loan, allowing you to borrow on top of your outstanding loan. Throughout this bridging period, you can sell your old property while getting finance to purchase a new one.

Here are a few things you need to know about bridging home loans:

• They are interest-only home loans
• They have a limited loan term, typically providing you with just enough time to sell your property.
• The amount you receive is determined according to the equity you’ve built on your existing property.
• They typically charge a higher interest rate if you haven’t sold your property within the bridging period.
• Bridging home loans may vary in structure from lender to lender.

How do we determine if a bridging home loan will work for you

1. Assessing your property situation

You’re currently in a position where you want to purchase a new property while paying off an existing one that is due to be sold. As a result, a bridging loan may be used to help finance the gap.

2. Discussing your situation with a mortgage broker

You’ve made a decision but are unsure where to start. That’s where a mortgage broker can help. We’ll discuss your financial situation, assess the equity you’ve built up in your existing property, and the purchase price of the property you want to buy.

With our panel of 40+ banks and non-bank lenders, we’ll determine your eligibility to apply for a bridging loan and take you through the terms, costs, savings and any special conditions involved.

3. Applying for a bridging loan

Once we’ve determined a bridging loan is your best option, we’ll formally apply for a bridging loan and provide all necessary documents and information to process your request (we’ll discuss the requirements below). 

The lender will evaluate your bridging loan application and consider your borrowing power. 

4. Loan terms and approval

Once we receive the initial approval, the lender will outline the loan terms and discuss the loan amount, interest rate, and other fees. Our senior mortgage broker will be with you through this stage to discuss the rates or terms and negotiate with the lender.

During this period, the lender explains the bridging loan structure. In most cases, you’ll be informed that repayments will only cover the interest of the bridging loan until you sell your old property. Talk to our mortgage experts at 1300 030 388 to learn more.

5. Purchase and settlement of the new property

Once we receive final approval, you will purchase your property using the loan. While you pay off the interest of your bridging loan throughout this bridging period, you’re still making full repayments to your original home loan.

6. Selling and settlement of your old property

Once you sell your old property and discharge the original mortgage, the equity you liquidate typically pays off the balance on your bridging loan.

7. Transition to repayments

After settlement and the bridging period, you will start making regular repayments on the principal of your bridging loan.

Opting for a bridging home loan is an intricate process and requires long-term planning. Our senior mortgage broker will keep working closely and help you understand the loan terms, guarantee a smooth and secure transaction, and manage your loan repayments, especially when taking up a second (bridging) home loan.

Bridging period and interest accrual

To clarify:

• Interest payments (bridging home loan): During the bridging period, you only pay interest payments to cover the accruing (or growing) interest on the bridging loan.
• Accumulation of interest: Since you’re paying for the interest, it doesn’t get added to the overall loan balance. It also does not increase the principal amount borrowed.
• Transition to principal + interest repayments: As soon as you sell and settle the old property and finally discharge the original home loan, you transition to paying the bridging loan—principal plus interest.

Still confused? Reach out to our mortgage brokers at 1300 030 388 and enquire now to learn more.

Bridging Home Loans: Pros and Cons

Like all other types of home loans, taking up a bridging loan has its share of pros and cons. We brought together common benefits and drawbacks to help you compare the best options before you seal the deal.

Advantages of Bridging Home Loans

• Convenience: Bridging home loans lets you purchase a new property straight away while you wait for your old property to sell
• Manageable repayments: With the right bridging loan structure, you can easily manage the bridging period and smoothly transition into post-settlement and principal repayment.
• You don’t need to be homeless between the sale/purchase: If you perfectly time the sale of your old property and the purchase of a new one, you can avoid the need to rent out a home while processing the settlement.

Disadvantages of Bridging Home Loans

• Larger loan offset if you don’t sell at the right time/price: If you don’t sell at the right time, you may risk your bridging lender stepping in. Additionally, if the property sells for a lower price, you’re left with a larger bridging loan balance.
• Extra loan fees: A bridging home loan is technically a second home loan. That means you’ll pay another valuation fee and loan processing fees on top of the fees incurred in your original loan.
• Accruing interest: The longer you sell your old property, the more your bridging loan’s interest will accrue or accumulate. Plus, if you don’t sell within the agreed bridging period, you may get charged a higher interest rate.
• Interest rates are typically higher: Interest rates are often 1% to 2% higher than the standard interest rates, depending upon the bank you select.
• Limited options: Less than 50% of banks actually offer bridging finance & most have very strict criteria. We find most borrowers only have less than a handful of eligible options.

We highly recommend reading the fine print to understand the lending policies, terms, and conditions before you make a long-term finance decision. Talk to our senior mortgage brokers at 1300 030 388 or enquire now.

What other types of mortgages can I use to bridge home loans?

Most bridging home loans in our panel are flexible and can be used for real estate purchasing as follows:

1. Variable-rate bridging home loan

In this type of bridging loan, your interest rate may increase or drop throughout the loan period based on a number of external and internal factors, such as:

• RBA Cash Rate
• Economic Conditions
• Market competition
• Funding costs of your bank/lender
• Your borrowing profile (credit score, LVR, employment stability, etc.)
• Loan features & market conditions
• Regulatory changes

2. Fixed rate bridging home loan

With a fixed rate bridging home loan, you and the lender agree on a fixed interest rate for an indicated period. After the period ends, the loan will revert to a variable rate.

3. Owner-occupied bridging home loan

You can also take up a bridging home loan for a property you plan to live in. These types of loans are owner-occupied home loans and are common for families looking to move to another suburb or property.

4. Investment bridging home loan

If you’re a professional looking to diversify your portfolio or switch to another real estate investment, you can apply for a bridging home loan as an investment home loan.

What requirements do I need to prepare for a bridging loan?

You’ll need roughly the same requirements your original home loan would ask. Depending on your chosen lender and the approved bridging home loan product, you may need to consider the following factors:

• Maximum Loan-to-Value Ratio (LVR) requirements, also known as deposit. Most bridging home loans have an 80% LVR or higher, depending on your borrowing power and available equity.
• Maximum bridging loan term, such as the time you need to sell your property (typically 6-12 months).
• Some bridging home loans have limited loan facilities and may not allow a redraw facility during the bridging period.
• Bridging home loans may be outright unavailable for strata title purchases or company purchases.

Refer to your mortgage broker at 1300 030 388 and enquire now to learn more.

How we make bridging home loans easy for you

Our senior mortgage brokers at Mortgage Pros will work with you every step of the way to make informed lending decisions and ensure that you have access to the best rates and lending solutions.

We take your existing property into account

Our mortgage brokers look at the bigger picture and consider whether you can pay off the bridging loan after selling your current property. Since you’ll be paying off the bridging loan with the proceeds of your old home, we’ll help you find loans that provide the best value for your old home.

We can negotiate the best interest-only rates

Until you sell your existing home, you’ll have to make interest-only payments on your bridging home loan. With our expertise in lending and finance, we can help you land a manageable loan to reduce the principal balance while decreasing the amount added to your bridging home loan.

We’ll help you manage repayments

At Mortgage Pros, we’ll take you through several bridging home loan solutions, discuss their corresponding interest payments, and budget your principal payments post-settlement.

In short, we make sure your home loan works for you. Bridging loans typically have higher rates than a typical home loan. That’s why we want to ensure you’re well-informed and capable of paying off your monthly payments.

How do I get started with my bridging home loan?

At Mortgage Pros, we’re the mortgage brokers who professionals call for the best bridging home loan deals. Our experience in senior banking positions has helped us develop a winning formula for helping Australian clients secure the best home loan deals.

When you partner with us, our senior mortgage brokers will get back to you with the best-rate bridging home loan options in less than 24 hours. 

Our mortgage specialists have a finance solution for your unique financial requirements. It’s simple; we write home loans to get approved.

Everything is risk-free, meaning you don’t have to pay us for our services. We work and negotiate on your behalf and are paid directly by the banks to create a win-win situation. Save time and money by speaking to us about your first home loan today.

Talk to us at 1300 030 388 and enquire now.