Bridging Loans Home Loans

Bridging Home Loans

Although bridging home loans are a relatively recent phenomenon in terms of their use, they have actually been helping Australian home buyers for decades. This type of loan is designed to address the various causes that create the rather common problem of finding the right new home for your needs while not yet having sold the old one.

The ability to bridge that financial gap through the use of this particular loan has increased in popularity since banks began loosening their lending rules. With this type of loan, you can purchase a new property before you old one has sold.

It was not long ago that this type of loan was perceived as a big risk with interest rates that were accordingly high. In addition, they are best designed for those who already have at least half of their previous mortgage already paid. This way, the combined interest rates of both loans will be more manageable. There are different models used to structure the bridging home loan and they also contain the familiar fees and charges as found with many other types of loans. A bridging loan will only require repayments on the interest until the property itself is sold and the principle of the loan can be fully repaid.

How Bridging Home Loans Work

This type of loan will allow you to purchase a new home before you old home is sold. The size of the loan can be calculated by adding the value of the new property to the mortgage you are currently carrying on your old home. By subtracting the estimated sale price, you can arrive at a figure that will be the size of the bridging loan.

A bridging loan is an interest-only loan during the time in which your old home is still up for sale. During this time, the interest will start to compound each month until your home is finally sold. The longer it takes for your old home to sell, the more interest you will pay on a bridging loan.

The Risks Associated with Bridging Loans

You will need to work with your lender to see if bridging home loans are right for your needs. The biggest question will be how long you can pay the interest on two separate loans. This can become quite burdensome the longer your home goes unsold.

However, the biggest risk that you run may very well be overestimating how much your old home will sell, leaving you short of paying off the loan. The more the loan falls short, the more that you will have to pay out of pocket. This is why many lenders suggest caution before deciding on taking on the burden of a bridging loan. Even the best laid plans may fall apart, so you will need to be careful before deciding if a bridging loan is right for you.

In addition to the loan itself, there are numerous fees and charges that are associated with this loan as well. So, anyone who is looking at getting bridging home loans will need to take in the totality of the amount, including the charges and fees so that it is all covered. 

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