Moving homes in Brisbane's dynamic property market often presents a timing challenge. You've found your dream home, but your current property hasn't sold yet. This is where bridging finance becomes invaluable, allowing you to purchase before you sell.
Understanding Bridging Finance
Bridging loans are short-term loans designed to help homeowners purchase a new property while still owning their existing home. These loans bridge the gap between buying and selling, providing the financial flexibility needed in today's property market.
The loan term usually spans 6 to 12 months to sell your existing property, though this can extend to 12 months if your new property is being built. This timeframe gives you breathing room to sell your current home without rushing into an unfavourable sale.
Should You Buy or Sell First?
This age-old question depends on your financial situation and the local property market conditions. Buying first with bridging finance offers several advantages:
• You can secure your desired property without sale conditions
• Avoid the stress of temporary accommodation
• Take time to achieve a better sale price on your current home
• Move at your own pace
However, this approach requires careful consideration of your borrowing capacity and the additional costs involved.
How Bridging Loans Work
Bridging finance operates on two key debt levels:
Peak Debt: This represents your maximum borrowing when you own both properties. It includes your existing home loan balance plus the contract purchase price of the new home, minus any deposit paid.
End Debt: This is your remaining debt after selling your existing property, which typically converts to a standard home loan or investment loan.
Lenders assess your ability to service both the peak debt and end debt scenarios when evaluating your loan application.
Interest Rates and Loan Structure
Bridging loan rates are typically higher than standard home loans due to their short-term nature and increased risk. You can choose between:
• Variable interest rate: Rates fluctuate with market conditions
• Fixed interest rate: Locked rate for the loan term
Many lenders offer interest capitalisation, meaning you don't make monthly repayments during the bridging period. Instead, interest accumulates and is paid when you sell your existing property.
Calculating Your Bridging Loan Amount
Several factors determine your bridging loan amount:
• Your current property's value
• The purchase price of your new home
• Your existing loan balance
• Your loan to value ratio (LVR)
• Whether you need to pay stamp duty
Most lenders require an LVR of 80% or below to avoid lenders mortgage insurance (LMI), though some may accept higher ratios with LMI.
The Application Process
Applying for a bridging loan involves a streamlined application process, but requires comprehensive documentation:
• Recent bank statements
• Property valuations for both homes
• Income verification
• Existing loan statements
• Contract of sale for the new property
Getting pre-approved can strengthen your position when making offers on new properties, showing sellers you have financing in place.
Bridging Loan Options Available
At LBK Lending, we can access bridging loan options from banks and lenders across Australia. Different lenders offer varying:
• Interest rate discounts
• LVR limits
• Fee structures
• Approval timeframes
Some products include offset account facilities, allowing you to reduce interest charges by parking savings against the loan balance.
Managing the Costs
While bridging finance provides flexibility, it's important to understand the costs involved:
• Higher interest rates than standard home loans
• Potential LMI if your LVR exceeds 80%
• Valuation fees for both properties
• Legal costs
• Stamp duty on the new property
Calculating bridging loan repayments helps you budget for the transition period and ensures the strategy aligns with your financial goals.
Making the Right Choice for Your Situation
Bridging finance isn't suitable for everyone. Consider this option if you:
• Have sufficient equity in your current home
• Can service the peak debt period
• Want to avoid sale conditions on your purchase
• Have a realistic timeline for selling your existing property
Your mortgage broker can assess whether bridging finance suits your circumstances and help you access the most appropriate loan options.
Bridging loans provide a valuable solution for Brisbane homeowners facing timing challenges in their property journey. With proper planning and professional guidance, this financial tool can help you secure your next home while maintaining control over your current property sale.
Ready to explore bridging finance options for your next property move? Call one of our team at LBK Lending or book an appointment at a time that works for you to discuss how we can help make your property transition smoother.
