Buying and selling houses can be stressful at the best of times. If you find yourself caught between two properties, bridging finance could be the solution to help you traverse that financial gap. Personalised Mortgages can assist you in finding the ideal bridging loan for your needs.
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.
The cost of a bridging loan depends on a variety of complex factors including the equity in your existing property, the amount you want to borrow and current interest rates. In some cases, you may be required to pay a loan setup fee. This is in addition to the normal interest payments on the loan until your old property sells or the loan term ends. While bridging finance rates can be costly in the short term, our expert advisers can help save you time and money by shopping around for the best available deals.
Because of the short-term nature of bridging loans, they typically have higher interest rates than standard home loans. As a rule, bridging loans are interest-only, which means you will only pay the interest on the loan until it is time to repay the principal, or the bulk of the loan. Bridging finance interest rates are based on the lender’s floating rate. At Personalised Mortgages we have developed long-standing relationships with over 20 of New Zealand’s top lenders, so we are ideally placed to help you access bridging finance that works for you.
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.
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.
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.
A bridging loan often carries higher interest rates and fees than a typical home loan, however it is a short-term means to an end rather than a long-term commitment. While your outgoings will increase over the period of the loan, the subsequent and ongoing benefits could significantly outweigh this initial outlay.
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 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.