Imagine you’re out enjoying a lazy Saturday afternoon drive, when you spot an open house sign on a home you’ve long admired. The curiosity is too much and you wander in for a look. But before you’ve even walked through the antique Balinese wooden front doors you’ve fallen in love.
It’s the type of scenario that explains why some homeowners buy before they sell.
But if you’ve seen your dream home and want to move quickly to ensure you don’t miss out then you may need to consider taking out a bridging loan.
What is a bridging loan?
As the name implies, it’s a short term loan that serves as a bridge between two transactions – in this case between the purchasing of a new property and receiving settlement funds from the sale of your existing home.
How a bridging loan works
The size of a bridging loan is calculated by adding the price of your new home to the amount owing on your existing mortgage, then subtracting the estimated sales price of your current home.
Then from a timings perspective, you usually have up to 3-6 months to sell your home. Once you’ve sold, the proceeds go straight into your new loan and you revert to normal repayments.
Advantages of a bridging loan
- A bridging loan can allow you to buy a new property before you sell your current home.
- You may be able to avoid the inconvenience of having to rent and moving twice.
- You normally have 3- 6 months to sell and settle the sale of your current home, meaning you may have slightly more time to sell and therefore the potential to get a better price.
Things to be aware of with bridging loans
- Interest-only repayments and capitalisation of interest that some lenders offer can assist in managing your finances, but remember you still have to pay both your current home loan and your bridging loan at the same time.
- If your home doesn’t sell within the bridging period, usually a maximum of 3-6 months, many lenders will begin charging much higher interest rates. They may also require you to start paying principal and interest on both loans, which can get very stressful.
- Bridging loans usually have an establishment or application fee.
Talk to an expert first
Bridging finance isn’t for everyone. You need to ensure it’s financially possible for you to manage two loans and that you could ride things out if things didn’t go your way with the sale of your house. If you’re on the fence, it’s best to talk to your lender and your accountant or financial advisor before you do anything.
At ING, bridging finance may be available if you’ve exchanged sale documents on your current home, but the settlement of your new purchase is scheduled to occur first.
The information is current as at publication. Any advice on this website does not take into account your objectives, financial situation or needs and you should consider whether it is appropriate for you. Deposit products, savings products, credit card and home loan products are issued by ING, a business name of ING Bank (Australia) Limited ABN 24 000 893 292, AFSL and Australian Credit Licence 229823. ING Living Super (which is part of the ING Superannuation Fund ABN 13 355 603 448) is issued by Diversa Trustees Limited ABN 49 006 421 638, AFSL 235153 RSE L0000635. The insurance cover offered by ING Living Super is provided by Metlife Insurance Limited ABN 75 004 274 882, AFSL 238096. ING Insurance is issued by Auto & General Insurance Company Limited (AGIC) ABN 42 111 586 353 AFSL Licence No 285571 as insurer. It is distributed by Auto & General Services Pty Ltd (AGS) ABN 61 003 617 909 AFSL 241411 and by ING as an Authorised Representative AR 1247634 of AGS. All applications for credit are subject to ING's credit approval criteria, and fees and charges apply. You should consider the relevant Product Disclosure Statement, Terms and Conditions, Fees and Limits Schedule, Financial Services Guide, Key Facts Sheet and Credit Guide available at ing.com.au when deciding whether to acquire, or to continue to hold, a product. Before interacting with us via our social media platforms, please take a minute to familiarise yourself with our Social Media User Terms https://www.ing.com.au/pdf/Social_Media_User_Terms.pdf.