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Upgrading? Your Guide To Bridging Finance

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If you’ve ever thought about upgrading your family home, you’ll know that organising the finances can be a complicated process.  Once you have made the decision to sell your house and purchase a new home, you need to figure out how you will manage your finances. Most people are in the situation where they need to access funds in their old property in order to be able to purchase their new property.  This sounds pretty straightforward, but can be difficult when it comes to timing the sale of your old home with the purchase of your new home. 

 

What is bridging finance?

Bridging finance is a loan that provides the funds that you need to buy your next home before you’ve sold your current home.  It enables you to pay the deposit to secure your new home and will cover any other costs such as stamp duty.  Once you have sold your current property, you then pay what you can onto the bridging loan, which then becomes your new home loan.

 

How do bridging loans work?

A bridging loan is calculated by adding the value of your new property to the outstanding mortgage on your existing home and then subtracting the likely sale price of your current property.  Bridging loans are interest-only so during a bridging period of 6 months, interest is compounded monthly.   The Interest rate on bridging loans are now comparable with other home loans, however, during the bridging period, you will basically be paying off two home loans.  In addition, you will not be paying anything off the loan during the bridging period. 

Risks of bridging loans

Like any loan, there are risks involved and so it is always important to seek financial advice from a professional such as Preston Finance.  It is also important to be aware of how things can go wrong and what risks are involved. Some possible risks include:

  • Your home does not sell in the bridging period.  If you don’t sell your property within the bridging period, some lenders will increase the interest rate. 
  • You can overestimate how much your property is worth.  In this case, you need to be prepared to pay off two home loans for longer than you initially planned! 

While bridging finance is a good option for people looking to upgrade their home, it is important to have a good understanding of what's involved in getting a bridging loan.  If you are in Cairns, get some financial advice from our friendly team at Preston Finance.  We will help you find the best bridging loan for your situation at the best interest rate available. Contact us today to find out more. Preston Finance ph 40520750

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