4 Facts to know about bridging loans
Making your next property move but need to sell your existing property first? Read about bridging loans to see if it's right for you.
Deciding to sell your current property and buy another one can present some challenges. Can you afford to buy before you sell? What if you find your dream home before you’ve sold your current home? Where will you live if you sell your current home and don’t find the right property right away?
A bridging loan can sometimes help. Bridging finance is a short-term loan that can help you buy the dream home you’ve just found while giving you up to 12 months to sell your existing home. Here’s 4 facts on bridging loans to give you an idea of how they work at Community First.
1. You have up to 12 months from the date of settlement of your new property to repay your Community First Bridging Loan
A bridging loan gives you up to 12 months of breathing space before it must be repaid. This allows you to complete the purchase of your new property, cover all purchase and moving costs and have time to prepare your existing home for sale.
It can minimise the stress and pressure to sell quickly – as well as the risk of missing out on your dream home.
2. A bridging loan covers three components: peak debt, bridging loan and end debt
When committing to purchase a new property, any mortgage on your existing home, plus the purchase price of the new dwelling, legal and stamp duty costs, relocation costs and renovations to prepare the existing home for sale are added to establish the peak debt.
The potential sale price of your new property is then deducted from the peak debt and if there is a remaining balance, this portion becomes the end debt loan. However, not all borrowers will have an end debt loan if the sale of the existing property covers the purchase and costs of the new home e.g. if you are downsizing.
A bridging loan can sometimes help. Bridging finance is a short-term loan that can help you buy the dream home you’ve just found while giving you up to 12 months to sell your existing home. Here’s 4 facts on bridging loans to give you an idea of how they work at Community First.
1. You have up to 12 months from the date of settlement of your new property to repay your Community First Bridging Loan
A bridging loan gives you up to 12 months of breathing space before it must be repaid. This allows you to complete the purchase of your new property, cover all purchase and moving costs and have time to prepare your existing home for sale.
It can minimise the stress and pressure to sell quickly – as well as the risk of missing out on your dream home.
2. A bridging loan covers three components: peak debt, bridging loan and end debt
When committing to purchase a new property, any mortgage on your existing home, plus the purchase price of the new dwelling, legal and stamp duty costs, relocation costs and renovations to prepare the existing home for sale are added to establish the peak debt.
The potential sale price of your new property is then deducted from the peak debt and if there is a remaining balance, this portion becomes the end debt loan. However, not all borrowers will have an end debt loan if the sale of the existing property covers the purchase and costs of the new home e.g. if you are downsizing.
If applicable, two loans will be established at the time of funding:
• The Bridging Loan that will be paid out and closed once the existing property has been sold
• The End Debt Loan that commences immediately as a standard owner occupier mortgage
3. Bridging loans are interest only, with no repayments required monthly
A bridging loan takes away some cash-flow stress as the repayments are interest-only, and these are added to the balance outstanding each month until the loan is repaid. While some lenders require you to make repayments during the interest only period, at Community First, we don’t require you to do this as we simply deduct the value of accrued interest you’ve incurred during the bridging period from the proceeds of sale of your current home.
If you have an end debt loan, principal and interest (P&I) repayments are required as soon as the loan is established, which is also at the commencement of the bridging loan.
4. Affordability of a bridging loan is assessed on end debt, not peak debt
Affordability assessments of a bridging loan involve evaluating the borrowers’ end debt which is the mortgage on their new property – if they have one.
Assessment of the proposed end debt is completed just like every other loan product – the difference is that when considering existing debt obligations, the bridging loan is excluded from the assessment.
When establishing a bridging loan with Community First, the mortgage will be held by us and may be secured by both the existing and new property. Any existing home loans with another financial institution will be paid out and closed.
Community First Credit Union LimitedABN 80 087 649 938 | Operating as Community First Bank | AFSL and Australian credit licence 231204| BSB 512-170