About Bridging Finance

Bridging Home Loans

As the name suggests, a bridging loan bridges the gap’ between two home loans. The lender you choose takes security over both properties and lends against these properties until the sale and purchase process on both is completed. It’s not that simple though. Bridging finance can be tricky and there are a number of things to consider.

Bridging home loans are a good way to buy a new property before the sale of your existing home. They are commonly used to finance the purchase of a new property while your current property is being sold. Bridging finance can also assist to build a new home while you live in your current home.

Understanding which option is the right one for you before signing a contract for the sale or purchase of your property is essential, so contact Salt Finance today and get the right advice on your bridging finance pre-approval.

What to consider

While in simple terms, funds from a bridging loan will bridge the finance gaps, it’s not quite as simple as theat. Make sure you speak with Salt Finance first, as the right loan option for you will depend upon a number of factors including:

1. How long are the funds required for? Is this known?

2. Do you have an unconditional contract on the property you are selling?

3. Is your new home being built an existing or new home?

4. Are the properties for investment or primary residence/s?

5. What is your ability to service or meet the repayments on your current loan and the bridging loan?

Your answers to these questions will define both the right bridging loan type for you and the amount you will be able to borrow. As with all loans, you need to be aware of the risks, so before you do anything, please make sure you speak with us first.

Match Your Bridging Finance Needs To The Right Home Loan

How does a bridging loan typically work?

Some lenders may allow you to capitalise the interest on a bridging loan, relieving you of the necessity of making loan repayments during the bridging period. If you choose to capitalise the interest you will most likely have a slightly higher new home loan to cover the capitalised interest.

Different lenders will allow you different maximum time periods to sell your home if you are purchasing or building your new home. As a general rule, the bridging finance period ranges between 6 & 12 months.

When you sell your first property, the proceeds of the sale are applied to the bridging loan, and any remainder becomes the end debt or new home loan. At this stage your home loan will usually revert to the lender’s standard variable interest rate or the interest rate you have negotiated.

Capitalising interest loans

A capitalising interest, bridging loan can greatly assist you into your new home as no repayments are generally required on the new loan while you are selling your existing home.

Instead, a new loan is established to purchase the new home and payout the loan against your existing home.

You continue making repayments on your existing loan, and in the meantime, interest is charged and accrues to your new home loan account as normal.

You do not need to make any repayments on that loan for 6 months, or until you sell your existing home, whichever occurs first.

In most cases, you can borrow up to 100% of the value of your new home plus any associated fees & charges.

Typically lenders like to see your combined loans not exceeding 80% of the combined value of both your new and existing properties, after taking into account the amount of interest that will be charged on the new loan during the changeover period. Finance can be obtained for those needing to borrow more than 80%

Not all lenders and loans will allow you to capitalise the interest. So before you do anything, click here to talk through your specific needs with Salt Finance. If needed, we’ll also work with your existing bank on your behalf and advise you of what your best options are.

Please click here to talk through your specific needs with Salt Finance and get the right advice on capitlising interest loans.

Loan portability

Many home loans these days have a loan portability feature in part or total.

Portability allows you to transfer your current loan from your old property to your new one, thereby avoiding many of the setup and ongoing costs associated with a new loan.

However, there are 2 things to consider. Not all lenders and loans will have this feature and for those that do, sometimes the loan portability is a useless feature as it is not possible to change the loan size or structure in any way and you would there for either need to establish a new loan or undertake an internal re-finance.

So before you do anything, click here to talk through your specific needs with Salt Finance. If needed, we’ll work with your existing bank on your behalf and advise you of what your best options are.