Is a Bridging Loan Worth It?

In the current market where property prices are trending higher and there’s a shortage of stock, upgrades and downgrades can find it difficult to get into a new property. For many, the age-old question of whether to buy first or sell first is more prominent than ever with the present housing market favoring sellers. 

Fortunately, there is an option that can help in the form of a bridging loan. A bridging loan is a short-term loan that helps buyers purchase a property before needing to sell their current property. 

In a perfect world, you would sell your property and then go out and find a new property. However, if the perfect home comes along beforehand, you might not want to miss out on the opportunity. That said, there are advantages and disadvantages to bridging loans. 

Advantages 

Speed 

The main benefit of a bridging loan is that you can buy a property right away. You don’t have to wait for the property to sell or even to settle, which can be a long time in some instances. It will also give you room to sell your property, so you aren’t forced to sell immediately at a worse price than you might have received otherwise. 

Capitalised Interest 

When you take out a bridging loan, it is normally an interest-only loan, where you pay back all the interest at the end when you sell your original property. With this type of loan, you’re only needing to pay back one mortgage at a time and can pay off all the accrued interest when you sell and settle on your current property. 

Standard Rates 

In years gone by, bridging loans weren’t as appealing as they often came with very high interest rates. These days many lenders will offer standard variable rates, but as always, policies differ between lenders and products. 

Disadvantages 

More Interest 

When you are taking on a bridging loan you are technically carrying two properties and therefore will be paying interest on both. The longer it takes to sell your current property the more interest you will be required to pay. Some lenders might even force you to pay higher interest rates after a set period of time. 

Higher Costs 

There are certain areas where you will need to pay additional costs when using a bridging loan. For example, given that you have two properties, you will need to pay for two valuations. There can also be costs involved with breaking your current loan to take on a bridging loan. 

Need To Service the Debt 

To qualify for a bridging loan, you still need to be able to service the total amount of debt based on your income and expenses. In some ways, this is similar to getting an investment loan. You will also need to have a reasonable amount of equity built up in your current home.

 YFA – Advice You Can Rely Upon 

Since 2012, we have been helping individuals, families and business to finance their dream property, car etc. Thanks to our customers, we are now being recognised as a trusted leader. 

With most precise refinance home loan calculator in Australia, it’s easy to find the costs. Our team can also find the best options for home loans in Sydney after assessing your goals and long-term plans.  

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Speak to our property loan advisor now!

Phone: 1300 YFA BROKER (932 276)
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