Are you curious about short-term bridging loans? This article will guide you through the essentials, covering what they are, how they operate, when they come in handy, the advantages they offer, and common eligibility requirements.
Understanding Short-Term Bridging Loans
Short-term bridging loan, increasingly popular in Australia and available through various lenders, serve as a financial bridge when transitioning from one home to another. Typically lasting six to 12 months, these loans range from $25,000 to $500,000. Private lenders are known for their streamlined application process, minimal documentation, and speedy funding, usually within three to five days.
The Bridging Loan Process
Consider this example: You own a property valued at $800,000 with an existing mortgage of $400,000, leaving you with 50% equity. You find your dream home priced at $1 million but haven't listed your current home for sale.
To avoid rushing the sale of your current home, you opt for a bridging loan to purchase the new one, increasing your loan balance to $1.4 million. As you sell your existing home for $800,000 in a few months, you pay down the combined loan, leaving an end debt of $600,000.
Features of Bridging Loans
During the bridging term, the added loan amount remains interest-only. Many lenders allow the interest to be capitalized, simplifying payments. This method ensures you pay the principal and interest on your original mortgage during the bridging term, with bridging loan interest paid from the sale of your current home.
When to Consider a Short-Term Bridging Loan
Apart from aiding in seamless home transitions, bridging finance serves various purposes:
- Renovating your property before selling
- Completing a small land subdivision or duplex
- Providing a deposit for a new property
- Assisting with immediate expenses
- Paying personal bills or debts
- Downsizing your home
Benefits of Short-Term Bridging Loans
- Secure your dream home before selling the current one.
- Avoid rushed sales, ensuring you maximize your home's value.
- Eliminate the hassle and expense of renting or moving twice.
- Capitalized interest payments ease your financial burden.
- Many lenders offer standard interest rates.
- Pay extra to reduce interest costs if your budget allows.
Types of Bridging Loans
- Closed Bridging Loan: Ideal when you have a property sale contract with an agreed price and settlement date.
- Open Bridging Loan: Suitable if you've found a new home but haven't listed your current one, although it involves more risk.
Eligibility for Bridging Loans
The equity in your current home plays a pivotal role in determining your eligibility, with most lenders seeking at least 50% equity. Numerous lenders offer short-term bridging loans, including traditional banks, non-bank lenders, private lenders, and fintech companies. In Australia, you can apply online for these loans from various providers.
Conclusion
Short-term bridging loans provide an effective solution for managing the transition between homes. With multiple lenders offering these loans, securing your new home before selling the current one has never been more accessible. Say goodbye to the stress of buying and selling property and welcome the convenience of bridging loans.
