Bridging finance: what it is and how to use it

Imagine that your dream home is up for sale and you can’t live without it. 

The only problem is that your current home isn’t even on the market, never mind sold. 

But don’t lose hope. Bridging finance can be the answer to your property aspirations, provided you meet certain criteria.

Bridging finance or a bridge loan is an interim lending arrangement prior to gaining approval for longer-term financing.

What to look for

As expected, due to its two to three-week loan duration, bridging finance is typically more expensive to obtain than traditional forms of financing. Bridging loans usually attract higher interest rates and other costs/risks involved that are amortised over a shorter timeframe. 

These can include a lower loan-to-value ratio and potentially cross collateralisation.

For loan terms of up to 12 months, two to four points may be charged. 

Bridging positives 

Due to this perception of increased financial risk, bridging finance is generally easy to secure and quick to process. 

Lower loan-to-value ratios also attract lower rates due to a decreased level of underwriting risk. But this could also result in front-end fees and valuation payments remaining fixed. 

The purpose of bridging finance

A bridging loan provides the necessary funds in a new loan (usually at the lender’s standard variable rate) to pay for your new home as you wait for the current home to sell. 

Like any loan application, it is important to provide the lender with details of your credit history, including income, assets and liabilities, and investments. 

But given the risk of having your property remaining unsold for some time, bridging finance requires the applicant to demonstrate some financial flexibility. 

How it can work for you

First and foremost is having sufficient equity in your existing home (at least 20 per cent of the loan amount; eg. $100,000 of a $500,000 loan) and additional cash for purchase costs to prove you can leverage the second loan. 

Just as important is the capacity to pay off two loans at the same time. 

If one can fulfil these obligations, and you are prepared to risk buying before selling, bridging finance can be invaluable in bringing your property dreams a step closer to reality.

For further information, consult your mortgage lender, bank or financial advisor. 

chrisbrown1224

Managing Director – New Vision Financial Services & New Vision Real Estate After years in the banking, finance & commercial sector Chris noticed that the industry needed a company with a personal touch that offered their customers a complete solution. In 2015 New Vision Financial Services was created to allow our consultants to use their experience (including approving and structuring large complex commercial transactions through to basic home loans) and to concentrate on offering a personalised service to their clients. With the growth and success of New Vision Financial Services a decision was made in 2019 to launch New Vision Real Estate to provide an end to end solution for client weather they be first home buyers or seasoned investors. Chris has built a team at New Vision Financial Services and New Vision Real Estate that have access to over 70 different lenders, insurers, lawyers, accountants and financial planners giving you more flexibility when making a decision. We offer a full service Real Estate agency offering Sales, Leasing, New Developments, House & Land and Commercial. Call me anytime on 0433 181 544 or email chris@newvisionfinancial.com.au The team at New Vision Financial Services have access to over 70 different lenders, giving you more flexibility when making a decision. Our consultants have had extensive experience within the banking, financial and corporate sector. At New Vision Financial Services we specialise in finance lending for home, investment, business, commercial, asset, debtor and many other requirements. As New Vision Financial Services has progressed, we have developed strong relationships with professional service providers such as; Financial Planners, Accountants, Settlement Agents, Leasing & Equipment Providers, Debt Management Specialists and any more to allow our clients access to a complete suite of services.