In an environment where interest rates on mortgages are constantly changing, locking in a rate can be a useful option to protect your interest rate for a set period of time (usually 30 to 90 days).
If you have found the house you would like to buy, but haven’t sold your current home, you will most likely need finance to meet the gap between receiving funds from the sale of your existing home and buying your new property.
A bridging loan can be a great tool to allow you to purchase before your property has sold, especially in Australia’s current property market where you need to move quickly to secure a property.
Provided you have enough equity in your existing property, you can borrow up to 100% of the purchase price with a bridging loan and later reduce the loan through the proceeds of the sale.
A bridging loan is typically set up on interest-only repayments with a term of up to 12 months. If you are considering taking out a bridging loan, 2 terms you should be familiar with are peak debt and end debt.
Peak debt refers to the total amount being borrowed for the new purchase.
End debt refers to the amount that will remain on the property once the proceeds of the sale have been used to reduce the loan.
Bridging loan facilities are great for flexibility as they give you the convenience of moving straight from one property to another without having to rent, however, you will have 2 loans running simultaneously so it’s important to consider affordability.
Additionally, not all lenders offer this type of product so it’s always best to speak to a broker and seek pre-approval before purchasing.
Watch Azura broker Nick O’Sullivan discuss Bridging Loans below.