Should You Buy or Sell First?
Many Croydon homeowners face this common dilemma: you've found your dream home, but your current property hasn't sold yet. The local property market can be unpredictable, and timing the sale of one property with the purchase of another is challenging. This is where Bridging Finance comes into play – a financial solution designed to bridge the gap between buying and selling.
What is Bridging Finance?
Bridging Finance is a short-term loan that allows you to purchase a new home while your existing property is still on the market. These loans typically run for 6 to 12 months, giving you time to sell your existing property. If your new property is being built, the loan term can extend to 12 months to accommodate construction timeframes.
Understanding Peak Debt and End Debt
When applying for a Bridging Loan, lenders will calculate two key figures:
• Peak Debt: This includes your existing home loan balance plus the contract purchase price of the new home
• End Debt: This is what you'll owe after selling your current property and paying off its mortgage
Your borrowing capacity depends on your ability to service the End Debt amount, not the Peak Debt, which makes Bridging Finance more accessible than many people realise.
How Bridging Loan Amounts Are Calculated
The Bridging Loan amount typically covers:
• Deposit for your new home (usually 10-20%)
• Stamp duty costs
• Legal fees and other purchase expenses
• Sometimes the full purchase price, depending on your financial situation
Your loan to value ratio (LVR) will be assessed across both properties, and you may need to pay lenders mortgage insurance (LMI) if your combined LVR exceeds 80%.
Interest Rates and Loan Types
Bridging Loan Rates are typically higher than standard home loan rates, reflecting the short-term nature and increased risk. You can choose between:
• Variable interest rate: Fluctuates with market conditions
• Fixed interest rate: Locked rate for the loan term
• Variable loan rates: Often come with offset account facilities
Many lenders offer Interest Capitalisation, meaning you don't make monthly repayments during the bridging period. Instead, interest is added to the loan balance and settled when you sell your existing property.
Calculating Bridging Loan Repayments
If you choose to make repayments rather than capitalise interest, calculating Bridging loan repayments involves considering:
• The loan interest rate
• Whether you choose a fixed interest rate loan or variable option
• The loan amount and term
• Any offset account benefits
The Application Process
Applying for a Bridging Loan involves a streamlined application process compared to traditional home loans. You'll need to provide:
• Bank statements (usually 3-6 months)
• Property valuations for both homes
• Sales contract for your new home
• Evidence of your existing property being marketed for sale
• Income verification documents
Many lenders can provide Loan pre-approval quickly, allowing you to make confident offers on properties.
Benefits for Croydon Residents
Croydon's diverse housing market means opportunities can arise quickly. Bridging Finance offers several advantages:
• Secure your new home without waiting for your current one to sell
• Avoid rental costs during the transition period
• Take advantage of market opportunities as they arise
• Reduce the stress of coordinating settlement dates
Influence Finance Group can access Bridging Loan options from banks and lenders across Australia, ensuring you get suitable terms for your situation.
When Bridging Finance Makes Sense
Bridging Finance works particularly well when:
• You're confident your current property will sell within the loan term
• The purchase opportunity is time-sensitive
• Moving twice (selling first, then buying) isn't practical
• You want to renovate your current home before selling
• You're buying an investment loan while keeping your current home
Interest Rate Discounts and Conversions
Many lenders offer interest rate discounts if you convert your Bridging Loan to a standard home loan or investment loan after selling your existing property. This can provide ongoing value beyond the bridging period.
Get pre-approved early in your property search to understand your borrowing capacity and move quickly when you find the right home. Whether you're looking at a home loan for your primary residence or considering an investment property, having your finance sorted gives you a significant advantage in Croydon's dynamic property market.
Remember, every financial situation is unique, and what works for one borrower may not suit another. Professional advice ensures you make informed decisions about buying a home and selling a home in the right sequence for your circumstances.