Bridging Finance or Relocation Loan

Sometimes the best laid plans can go astray and coordinating both the buying and selling of property may not coincide. This is especially common if you find the home of your dreams whilst your current property is still unsold or you'd like to build a new home and continue to live in your present home during the construction period. In times like this relocation or bridging finance can help.

Bridging finance is designed to help home buyers manage the gap between the purchase of a new property and the sale of another. For many, it is a lifeline that takes some of the stress out of purchasing a new home or investment property while selling an existing property. With most lenders bridging loans follow the same basic principles but may have variations in the actual terms and conditions.

Your finance broker provide the detail how these terms and conditions will affect your borrowings and discuss which offering comes closest to meeting your individual needs. There are a number of ways that bridging finance can be of value to property buyers, for example, you require funds for a short period of time to purchase or build a new property while your old property is still on the market.

To facilitate this, the bank would take security over your old property and your new property and provide you with a short term loan. When your old property is sold, the bank then applies the proceeds of the sale to the bridging loan, and any funds still owing could become the mortgage on your new property.

Bridging finance is usually available for terms ranging from a few weeks up to 12 months. Depending on your circumstances, most lenders will either capitalise the interest during a period of bridging finance so there are no scheduled repayments, or will require scheduled interest-only repayments. This makes bridging finance affordable for many borrowers who could not afford to carry two mortgages at the same time. The interest rates applied to loans during a bridging finance period may be marginally higher than the standard variable rate available. However, once the bridging period ends and your loan returns to a normal home loan product, then lower market rates usually apply.

Your application for bridging finance will be prepared and submitted to the lender by your finance broker. Your loan serviceability will usually be based on your capacity to repay the end debt. The end debt is any remaining loan balance after your existing home is sold and the sale proceeds have been applied to pay down the bridging loan. Bridging finance can conveniently solve the problem of having to sell before you buy or build.

It can give eligible borrowers a valuable safety net when considering a new home purchase and may provide the flexibility to act quickly to secure that dream home or an ideal investment property. Remember, your finance broker is experienced in packaging bridging finance and will be able to discuss with you the different terms, conditions and serviceability guidelines of each lender. This will assist you in finding a home loan with a bridging option that is suited to your individual needs.