Building a new home in Bulimba can be an exciting journey, but managing cash flow during construction often presents unique challenges. Many homeowners find themselves caught between selling their current property and financing their new build. This is where bridging finance becomes a valuable financial tool.
Understanding Bridging Finance for Construction Projects
Bridging finance acts as a short-term solution that helps you bridge the gap between buying and selling properties. When you're building a new home, these loans typically run for 12 months if a new property is being built, giving you adequate time to complete construction and arrange permanent financing.
The loan term usually extends to 6 to 12 months to sell your existing property if you're simply moving between established homes. However, construction projects require additional time, making the extended 12-month period particularly beneficial for Bulimba residents undertaking building projects.
How Bridging Loans Support Construction Cash Flow
During construction, you'll face various payment milestones and unexpected costs. A bridging loan amount can help manage these financial pressures in several ways:
• Peak Debt Management: This represents the maximum amount you'll owe when both your existing mortgage and bridging loan are active simultaneously
• Interest Capitalisation: Rather than making monthly repayments, interest can be added to the loan balance, preserving your cash flow
• Flexible Draw-down: Access funds as construction milestones are reached
• End Debt Planning: The remaining balance after selling your existing property
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Book a chat with a Finance & Mortgage Broker at LBK Lending today.
Should You Buy or Sell First When Building?
This common dilemma affects many Bulimba families. The local property market conditions, your financial situation, and personal circumstances all influence this decision. Bridging finance offers flexibility by allowing you to:
- Secure your building site without selling first
- Avoid temporary accommodation costs
- Time your sale strategically
- Maintain family stability during construction
Understanding Bridging Loan Rates and Costs
Bridging loan rates typically sit higher than standard home loan rates due to their short-term nature and convenience. You might encounter:
• Variable interest rates that fluctuate with market conditions
• Fixed interest rate options for predictable repayments
• Additional costs including lenders mortgage insurance (LMI) depending on your loan to value ratio (LVR)
• Stamp duty considerations on your new purchase
Calculating bridging loan repayments involves considering both your existing mortgage and the new loan interest rate. Many lenders offer interest rate discounts when you commit to taking your permanent construction loan with them.
The Application Process for Construction Bridging Finance
Applying for a bridging loan requires thorough preparation. Lenders will assess your borrowing capacity based on:
• Your ability to service both loans during the bridging period
• Bank statements demonstrating financial stability
• Construction contracts and timeline
• The contract purchase price of the new home
• Your existing property's estimated sale value
At LBK Lending, we can access bridging loan options from banks and lenders across Australia, helping you find suitable terms for your situation. The streamlined application process often moves faster than traditional home loan applications, recognising the time-sensitive nature of construction projects.
Getting Pre-Approved and Managing Your Loan
Loan pre-approval provides confidence when negotiating with builders and purchasing land. Getting pre-approved also helps you understand your peak debt position and plan accordingly.
Consider whether an offset account might benefit your situation. While not all bridging loan products offer this feature, it can help reduce interest costs if you have surplus funds during construction.
Making the Right Choice for Your Situation
Whether you're building your first home or adding an investment property to your portfolio, bridging finance can provide the cash flow support needed during construction. The key is understanding how these short-term loans fit within your broader financial strategy.
Every financial situation is unique, and what works for one Bulimba family may not suit another. Professional guidance helps ensure you're making informed decisions about loan terms, interest rates, and timing.
If you're considering building a new home and need support managing cash flow during construction, we're here to help. Call one of our team or book an appointment at a time that works for you to discuss your bridging finance options.
