Conveniently access the cash needed for your next investment or dream home without the hassle of having to offload your current property asset.
Short-term property loans – often bridge or bridging loans – offer a convenient alternative to fully completing the sale of your residence or property project before negotiating the terms of your next acquisition.
Selling your home before securing a new place can require putting your possessions in storage, imposing on friends and relatives, or even renting temporarily. Bridge loans remove these hassle and enable a seamless transition.
Without the benefits of bridge loan, many people have to make their purchase offers conditional on the sale of their existing property. Given the time and uncertainty entailed, these clauses are viewed poorly by vendors and will weaken your offer.
Sometimes you have to put the pedal to the metal in the property game. When a red-hot opportunity comes up, you can’t always afford the time spent marketing, negotiating and settling the sale of your existing property.
Bridging loans can be complicated, involving extensive due diligence around the likely sales outcome for your existing property, and your ability to service dramatically elevated repayments when you’re principal covers 2 separate assets. Our finance brokers speed things along keen eyes for detail and extensive network.
Short-term property funding through bridging finance requires the existing property to be held as security by the lender – bank or private – before they’ll release funds to cover the new acquisition. If you’re current financial institution won’t offer a bridge loan, we can help you refinance your mortgage with one that will.
Short-term property loans are niche financial facilities with a lot of moving parts. With one of the largest networks of bank and non-bank lenders in Australia, we’ll help match you with the best lender, with the right term, rates, and conditions to match your unique situation.
Bridging finance is commonly used by homeowners looking to upgrade or downsize to a new place without the hassles of having to first sell their existing home. Each bank and lender has their own rules and requirements, but as a general rule, you’ll need to show you’ve got the income or cash on hand to cover repayments during the bridging loan period, enough equity in your current property to pay down the principal when the proceeds of sale come through, and firm proof that you’re in a positionto effectively sell your current place.
Today’s property developer is contantly eyeing off their next project. To secure fast funding for the acquisition of their next block of land or to cover things like construction costs, bridging facilities can be configured to unlock equity in a recently finished but yet to be sold development. Sometimes, repayments can capitalised (at least partially), meaning they are added to the overall ‘peak debt’ – the amount comprising the outstanding mortgage on the existing property plus the funding for the additional asset (e.g. new block of land).
If your bank won’t play ball or you’re just exploring options, sit down with one of our bridge loan brokers to see if we can help you span the gap between your current position and the ideal outcome.
A bridging loan (also known as a bridge loan, or bridging finance), is a financial facility that enables a borrower to fund the purchase of a new property without first having to sell their existing one. Unlike other property loans, they are repaid over a short timeframe – from as little as a few weeks, to 12 months or more on the longer side. The lender will nearly always maintain or take over the borrower’s current mortgage.
During the bridging loan period, the total debt will comprise the outstanding mortgage on the borrower’s existing property, plus the funds borrowed to purchase the next property (this combined amount is known as peak debt), so total monthly repayments will increase dramatically. Many borrowers opt for interest-only repayments to make this more manageable. Sometimes the repayments are capitalised, meaning they aren’t repaid in regular installments; rather they’re added to the overall debt to be settled at the end of the loan term.
Before granting bridging finance, the lender values your existing property to get an informed estimate of your equity position. In most cases, the lender makes the bridge loan on the condition that after the bridging period has elapsed, you’ll continue a financial arrangement with them to pay off the mortgage on your new place. They will stipulate that you use a minimum portion of the proceeds of the sale of your existing property to pay down the peak debt. This revised amount is known as end debt – effectively becoming your new mortgage.
Sure thing. It’s often best to put some numbers around complex concepts to gain a deeper understanding.
Imagine you have $500,000 outstanding on your mortgage for your current home, which is valued at $1,250,000. Your available equity is $750,000 (give or take).
You’ve identified your dream home on the market, which is expected to sell for around $2,000,000. You have $300,000 accumulated in savings for a deposit.
You could employ the ‘traditional’ approach of waiting until you’ve sold your existing home to unlock the equity for a larger deposit, or make an offer on your dream place that’s conditional to the sale of your current property, but you’re worried that this might result in you losing out to another buyer. Also, the new property is a few hours’ drive from where you live now, further complicating the already fraught experience of moving. Considering these factors, you decide to apply for short-term property finance.
Your lender starts by calculating the peak debt. That is the cost of your new property (minus your cash deposit) plus the outstanding amount on your existing mortgage.
| Cost of new property (less deposit) | Existing mortgage | Peak debt total |
|---|---|---|
| $1,700,000 | $500,000 | $2,200,000 |
During the bridging loan period, you’ll generally have to make interest-only repayments (unless the repayments are capitalised – added to the overall end debt amount). If you made interest-only repayments on your current $500,000 mortgage to the tune of about $2,000 per month, that amount could realistic grow 5 or 6-fold ($10,000+ per month in this example) during the period of servicing your peak debt (bridging loans attract a higher interest rate than standard mortgages).
Short-term property financing facilities aren’t for everyone; the convenience and flexiblity they offer comes at a price, reflecting the higher risk they pose to the lender. As a general rule, it’s best to keep the terms as short as possible and ensure you make every effort to efficiently and effectively sell your existing property. So, if in this example, you limited the loan period to 3 months at a competitive 6% interest-only repayment rate, this is a breakdown of the sorts of payments you might make:
| Month | Interest-only repayment | Interest rate |
|---|---|---|
| 1 | $11,000 | 6% |
| 2 | $11,000 | 6% |
| 3 | $11,000 | 6% |
Total repayments | $33,000 |
During those 3 months, you’ve managed to sell your home for $1,350,000. Using the additonal $100,000 to cover agent’s and legal fees and stamp duty, you pay down the peak debt by $1,250,000, as per the original loan agreement. Your peak debt is reduced to $950,000, becoming the end debt that transitions into a standard principal and interest mortgage.
The main benefits of bridging finance are:
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