You may be forced to purchase a new house before you can sell your existing property due to extenuating circumstances
And though purchasing before you sell has its advantages - you only need to relocate once, you don’t have to find temporary housing, etc. – you need to factor in some things before doing it.
You will often require some type of finance or loan when you purchase a new house before you have sold your existing home so that you can manage owning two properties at the same time.
This loan or finance is what you call ‘bridging loan.’ It is the same as other home loan products in that you have the option of choosing between a fixed or variable rate.
However, bridging loan is different from traditional home loan because the loan term of a bridging finance is shorter – typically ranging from six to 12 months – and the interest rate is frequently higher than a regular variable loan.
The standard variable rate will be charged at some banks. However, the interest rate will be adjusted based on the client’s circumstances and how risky they are by other banks.
Make sure you know what you are in for before getting a bridging loan. Determine the calculation of your mortgage repayments during the bridging period and the amount you need to pay.
While you are waiting for the sale of your existing home to close, the minimum amount you need to pay is normally computed on an interest only basis. You may be able to capitalise all repayments until the sale is closed, depending on your lender. Of course, don’t forget that if you go through with this option, expect to see an increase in your peak debt. This will raise the total amount of interest you will pay.
It is recommended that you make some repayments whenever possible so that if you can’t sell your current home immediately, you will not have to make an extra six months repayments to your loan (instead, the sum to be added to your loan will be decreased by the amount you have already repaid.
Making the Right Choice
Identify the pros and cons of a bridging loan before taking out this type of loan.
One of the major disadvantages of a bridging loan is that it tends to be a little more expensive that a normal mortgage. That said, the benefit is that it gives you time to wait for the best possible selling price for your home rather than putting you in a spot where you are forced to accept a lower offer.
If you find yourself in need of a bridging loan, it is best to speak to a professional. A mortgage broker can guide you through the entire process and advise you on whether or not it is the right option for your needs.
And the easiest way to avoid having to get a bridging loan in the first place, is to sell your current home first. To know what your home is worth in today's market ask me for an appraisal by calling me directly on 0418447856 or click here to find out what your home is currently worth.