The housing market in Australia is beginning to cool after its property boom in the last two years, which is spurring many people to consider buying a new property. Though independently of whether the housing market is buoyant or stagnant, or whether you’re seeking to upgrade or downsize, property transactions can be unpredictable, and there’s often a ‘mismatch’ between finding your new home and selling your current place. This is where a short-term property loan, such as a bridging loan, can be a lifesaver. Good news: there are also a variety of lenders that supply bridging loans to help acquire your ideal property.
What is a bridging loan?
As the name suggests, bridging loans ‘bridge the gap’ between purchasing your new home while waiting for your existing home to be sold. In this scenario, lenders will provide a loan to purchase the new property (and often cover any mortgage left from your previous home). This facility is increasingly popular as it allows buyers the flexibility to choose their ideal home without the stress of not having enough financial resources for the purchase.
Top 6 tips to make the most of your bridging loan
There are several factors to keep in mind if you’re considering a bridging loan, including:
1. Be specific and realistic about your needs.
Before you even approach a lender to take a bridging loan, consider how much money you need to borrow, the term required and how much flexibility is required (i.e. if you can pay the loan earlier or extend out if need be). Most importantly, make sure that you’re in the position to repay the loan comfortably.
2. Assess your current circumstances.
Once you have identified your needs, assess your current circumstances to include how much equity you have on your home and how much mortgage is remaining. These factors will be taken into consideration by the lender when determining the amount of money you’re able to borrow.
3. Get a valuation.
It’s a common mistake for homeowners to have an inflated anticipation of their home’s value. To avoid this trap, it’s wise to get a valuation of your property to ensure you have an accurate and realistic expectation of its worth.
4. Do your research and deal only with reputable and reliable lenders.
A lot of lenders offer bridging loans, including banks, non-bank, fintechs, specialist and private lenders like Mango Credit. Each lender will vary with interest rates, fees, terms and loan flexibility. It’s best to conduct thorough research and not only choose a lender based on rate, but also consider their broader terms and reputation. A finance broker is ideally positioned to help with this process.
5. Prepare all pre-loan requirements.
When you have decided which lending company to take a bridging loan with, prepare all the pre-loan requirements to help facilitate a quick approval.
6. Get appropriate legal representation to support your application.
It’s wise to consult with a lawyer to help you understand the full terms and implications of any loan agreement. Again, a finance broker can also assist.
A bridging loan ‘bridges the gap’ by providing immediate cash flow during a financial shortfall (usually a temporary situation where a financial obligation is much more than your available cash). It allows you to secure real estate properties as fast as possible. In addition, it can be used for a variety of purposes, including renovations to help increase the house’s sale value.