Bridging finance is a tool that you can use if you want to buy a new property before you have settled or sold your existing property. In short, a bridging loan is a temporary, short-term loan of up to 12 months to allow you some leeway between settlement dates, reducing the pressure to sell up quickly. Perhaps you need to relocate at short notice, and you haven’t had time to sell your existing home. Or maybe you have found your dream property and you need to move fast to complete the deal. These are just a couple of the types of situations in which bridging finance could be right for you.
“Andrew came highly recommended to us by a work colleague and we couldn’t have been happier with his service. This was our first home and he answered every question we threw at him while providing honest, detailed information on the questions we didn’t know to ask. Everything was thorough and on-time and we have no hesitation in recommending him as a mortgage broker.”
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Bridging finance is typically structured on a floating interest rate, which means repayments can move in line with market changes.
Because you are often holding finance on both your existing property and your new purchase during the bridging period, it’s important to ensure you can comfortably manage the repayments across both loans until your existing property is sold or the structure is finalised.
At Personalised Mortgages, we have long-standing relationships with over 20 of New Zealand’s top lenders, which allows us to help you access bridging finance options that suit your situation.
The Pros
Bridging finance is a way to buy a new property before the sale of your old property is finalised. This can be a useful tool for getting from A to B, alleviating the potential stress of multiple moves and temporary renting in the interim period between settlements. A bridging loan can help reduce the pressure to sell fast, allowing you extra time to secure a good price on the sale of your old home.
The Cons
Bridging finance often comes with significant risk. It can be expensive in the short term, so it is vital to ensure that you are able to cover the additional costs during the term of the loan. And if things go wrong, you could end up in serious financial difficulty, with the lender forcing a sale on one of the properties. In the event of your old home not selling within the loan period, you could find yourself responsible for paying two mortgages. Or in the event of your old property selling for considerably less than expected, you may need to apply for additional financing to cover the shortfall.
There are two main types of bridging finance: open and closed. Uncommon in New Zealand, an open bridging loan is for when you want to buy a new property before you have received a firm offer on your old house. You may have an interested buyer, but nothing has been signed yet. Lenders consider open bridging loans to carry higher risk, so this type of loan may be more difficult to secure, with higher costs involved.
A closed bridging loan is for when you already have a settlement date for the sale of your old property. This type of bridging loan has a set end date, because you know exactly when you will have the funds to pay off the loan. These repayment dates are typically within 12 months of taking out the bridging loan. While easier to facilitate than open bridging, closed bridging loans cans till be fairly complicated to set up, so it’s always worth talking to an experienced Mortgage Adviser.
Because of the complexity of the various factors involved, it could take anything from a few days to a few weeks to arrange a bridging loan. At Personalised Mortgages, our friendly advisers are on hand to talk through your options and discuss timescales on accessing bridging finance.
The answer to this question depends on the specifics of your individual financial situation, including your income, assets and equity in your existing property. Due to the complexity of securing bridging finance, it is always worth talking to a trusted Mortgage Adviser to discuss whether bridging finance is the right option to help you achieve your property goals.
If bridging finance isn’t right for you, there are a number of alternative solutions to consider. One possibility would be to take out a mortgage top-up/equity release to fund the purchase of your new home. Talking to a qualified Mortgage Adviser is great way to find out what lending options are available to you, and which would best meet your financial requirements.
Whether you’re looking for expert mortgage advice to get you into your first home, or you’re upgrading, refinancing or looking for an investment property, our experienced team can help find the right solution for you.
