Bridging Finance - Is it worth doing?

Bridging Finance is used on occasions where you have found your next home, but haven't yet sold your own home.

A bridging lender will take a mortgage over your existing home and the new home to allow you to complete your home purchase. Once your existing home is sold, some or all of the loan clears. Any remaining loan on the new home is then converted to a normal home loan.

Bridging lenders will allow a loan term of up to 12 months for your bridging loan. Some bridging lenders will require that you make interest only repayments during the bridging period. If you have enough equity in your home, some lenders will allow you to capitalise the interest on your bridging loan (meaning the interest is added to your loan balance each month).

Bridging does allow you to secure the home you really want, which is a good thing. But there a risks….

• Bridging Home Loan rates are usually higher than standard home loan rates
• Not every lender will offer bridging loans. If your existing home loan is with a lender that doesn’t offer bridging finance you will need to refinance your home loan at the same time
• If you are making interest only repayments, it can be quite a drain on your cashflow to cover bridging finance while waiting for your home to sell
• If you are capitalising interest on your bridging loan, this can add up quickly and leave you with more owing than you anticipated
• Having a bridging loan can put a lot of stress on you as a vendor, meaning you may not be able to hold out for a better home loan offer

If you are weighing up bridging finance to get into your next home, we will be glad to help with assessing your options to help arrive at an informed decision.

Give North Coast Lending a call today.