Why do you need a bridging loan?

Why do you need a bridging loan?

If you’re looking to move house, you’ve probably heard of the term “bridging finance”. But what is a bridging loan, and how does it work?

Imagine the scenario: after months of scouring the real estate market, you’ve finally found the perfect home at a price you’re happy with and want to snap it up before someone else does.

But what do you do if you haven’t yet sold the house you already own – which has its own mortgage attached?

Well, one option to consider is a bridging loan.

A bridging loan is a special type of short-term loan designed to cover the purchase price of a second property while giving you time to sell your existing property, even if you already have a mortgage. It’s a financial “bridge”, allowing homeowners to traverse the gap between buying and selling.

However, it always pays to consider the pros and cons of your choices before committing yourself.

 

Selling before buying:

One option, of course, is to ensure you’ve sold before launching into the purchase of another property.

Pros:

  • You’ll know the exact amount needed to put towards your next purchase.
  • You can sit tight waiting until you are happy with the sale price of your property.
  • You won’t need to apply for a bridging loan to finance both properties – and you won’t have to pay two loans at once.

Cons:

  • The perfect house may not be – or stay! – on the market, meaning you’ll have to move out without a permanent place to live.
  • You might have to find an intermediary rental home – adding extra expense and hassle.
  • By waiting, you might be priced out of the market.

 

Buying before selling:

Where a bridging loan might be required to get you over the line.

Pros:

  • You’ll avoid the hassle and cost of moving into a temporary rental property.
  • You won’t have the stress of hurrying to find a new house to buy.
  • Potentially take advantage of a rising market and get more for your money … and make more from your home sale.

Cons:

  • Interest on bridging loans is more than the interest on standard term loans.
  • You’ll have the extra cost and stress of having to repay two mortgages at once.
  • Bridging loans must be repaid within 12 months. If you need the money to meet your loan, you may be forced into selling your original property at a lower price.
  • If you can’t sell your existing home for the price you need or expected, you may have to find more funds to cover the shortfall.
  • If you’re making a conditional offer on a property, you might need to make a higher offer to convince an owner to hold the property while you sort out your circumstances.

 

Find your best option with OzBroker

If you’re thinking of making a move but not quite sure where you stand financially, please contact us for a free consultation with our expert team!

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