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Bridging Loans - What You Need to Know

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Are you considering upgrading to a new home but still have your existing property?

Are you considering upgrading to a new home but still have your existing property?

If so, a bridging loan could be your solution! This short-term financing option covers up to 105% of your new property’s cost while securing it against your current home.

Here’s what you should know about bridging loans:

  • Flexible Repayment Options: Depending on the lender, you may not need to make any repayments during the bridging term. Some banks will cover these payments for you—just remember, this will be deducted from your loan amount.
  • Interest-Only Requirements: While some lenders will hold off on repayments, others may require interest-only payments during the bridging period. It’s key to understand your lender’s terms!
  • Loan-to-Value Ratio (LVR): For your bridging loan to be effective, your existing property should maintain an LVR of around 60%. This ensures you can borrow the full amount for your new home without needing substantial savings.
  • Interest Rates: Be aware that some lenders may charge higher interest rates when consolidating your existing and new loans. Always check the fine print!
  • Contractual Obligations: Some lenders might ask for a signed contract of sale on your existing home. Others might not have this requirement, providing you with more flexibility.
  • Borrowing Capacity Calculations: Each lender has different calculations for determining your borrowing capacity. Some will consider the total debt, while others look only at the end debt.

    • With these variables in mind, navigating the world of bridging loans can seem overwhelming. That’s where we come in! We specialise in making sense of the complexities within bridging loans and finding the perfect solution for your needs.

    Are you ready to upgrade your living situation? Let us guide you through the process.

    Book in for a Chat!

    Client Case Study: Bridging Loan to Upgrade Property

    Client Scenario:
    Our clients were eager to upgrade to a new property but needed the proceeds from the sale of their current home to facilitate the purchase. As they began the selling process, they discovered a fantastic opportunity to purchase their dream home. To avoid losing this opportunity while waiting for their home sale to finalise, they needed a seamless financing solution.

    Bridging Loan Solution:
    To enable our clients to secure their new home without delay, we facilitated a bridging loan. This allowed them to access the necessary funds immediately, ensuring they could confidently purchase the new property while their current home was still on the market.

    Purchase Breakdown

  • New Property Purchase Price: $1,400,000
  • Associated Purchase Costs: $84,000
  • Total Costs: $1,400,000 + $84,000 = $1,484,000
  • Client’s Contribution (5% deposit): $70,000
  • Total Funds Required for Purchase: $1,484,000 – $70,000 = $1,414,000

    • Financing Breakdown:
    To meet the total funds required of $1,414,000, we established two loans (secured against both properties):

    Split 1. Bridging Loan:

  • Amount: $935,000 (lender lends up to maximum of 85% of existing home – valued at $1.1M)
  • Interest Rate: 9.03%

    • Note: Interest is capitalised (no monthly repayments during the bridging period to help cashflow).

    Split 2. End Loan:

  • Funds Required for New Home: $1,414,000 – $935,000 = $479,000
  • Amount: $479,000 (net loan after sale of home)
  • Interest Rate: 5.89%
  • Monthly Repayment: $2,839

    • Post Sale Overview:
    Once the current home sold for $1,100,000, the funds from the sale were used to pay off the bridging loan and interest incurred during the three-month sales process.

  • Sale Price of Home: $1,100,000
  • Selling Costs: $30,000
  • Sales Proceeds After Selling Costs: $1,100,000 – $30,000 = $1,070,000
  • Bridging Loan Repayment: $935,000
  • Interest on Bridging Loan: $21,107.62 (for 90 days)

    • Final Sale Proceeds: $1,070,000 – $935,000 – $21,107.62 = $113,892.38

    Conclusion
    By utilising the bridging loan, our clients were able to purchase their new home swiftly without delaying their plans. With the sale of their previous home, they could pay off the bridging loan, leaving them with surplus proceeds of $113,892.38 that they could use to reduce their end loan, leave in offset account as emergency funds, or for other purposes. This solution not only provided peace of mind but also ensured they did not miss out on their dream property.

    Book a time to explore your options
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