Our brokers work hard at understanding our client’s unique circumstances and helping them overcome common home loan challenges. Whether you’re a first home buyer or an experienced investor, we’ll help you find the best home loan for your situation. Whether you’re self-employed and have trouble proving your income or you’re a contractor or casual worker, we offer solutions for all types of clients’ income sources.
If you’re thinking of applying for a bridging loan in Melbourne, there are a few things you need to know. Bridging finance can be a great way to get your property purchase over the line, but it’s important to understand the basics before you apply. You won’t find a better loan than with brokers from Break Free Home Loans who prioritize our clients’ needs. We work with a wide range of lenders, so we can find the perfect loan for you from a large selection of options. Talk to our experienced brokers to begin your loan application today.
What Is A Bridging Loan?
How It Works
As it can take some time to sell your home, you may not have the sales proceeds you need to buy your new property. With a bridge loan, you can avoid the stress of matching up settlement dates. You’ll have the flexibility to move quickly into your new home and give yourself the time to sell your existing property. You won’t have to vacate your premises or hold off moving. For this reason, short-term bridging loans are also sometimes known as relocation loans.
- Have equity in your property: To get the most value out of your loan, you should have more than 50% of the equity in your home.
- Meet standard lending requirements: For lenders to approve your loan, you must provide evidence of your current income, employment status, expenses, and other supporting documents. You need to have a good credit history to get low-interest rates, as lenders will view you as a lower-risk borrower.
- Maximum bridge term of 6 months for existing properties: If you’re applying for finance on an existing property, you need to pay off your loan within 6 months. Bridging extensions are only available on a case-by-case basis.
- Maximum bridge term of 12 months for a new property: If you’re buying a new property, you need to repay your loan in 12 months’ time.
- Unconditional sale on an existing property: You need to have already exchanged contracts for existing properties with the buyer or agent before you can be approved for a bridge loan.
How Much Can I Borrow?
- Up to 80% of the peak debt: Peak debt is the purchase price of the new property plus your current mortgage.
- Up to 90% of the peak debt: Most banks and online lenders who offer bridging finance will offer up to 90% of the property value. However, loans with an LVR value as high as this are much harder to qualify for and Lenders Mortgage Insurance (LMI) will be payable.
- Bridging loan interest rate payment and fire sale buffer added: Oftentimes, lenders will add a 6-month interest rate buffer when evaluating your ability to repay their loan. They will also discount the projected sale price of your existing property by 15%. This is known as the fire sale buffer, which will affect your borrowing power.
Types Of Bridging Loans
How To Apply For A Bridging Finance In Melbourne?
- A completed bridging finance application form
- Loan purpose statement
- Most recent personal and/or business tax returns
- Personal and/or business financial statements
- Details of current asset and liability positions
- 6 months of personal and/or business bank account statements
What Do You Need To Know?
What Are The Pros And Cons Of Bridging Loans?
|Buy your property straight away: No need to wait to get a loan.
||Interest is compounded monthly: While interest is capitalised on top of peak debt, the longer it takes to sell your property, the more interest will accrue on your loan. Interest is compounded on a monthly basis.|
|Gives you time to get a better price on your property: Avoid the stress of a rushed sale and sell your property for a higher price.||You need to pay for two valuations: You’ll pay for the valuation of both your existing and new property. This can cost upwards of $200.|
|Interest-only repayments capitalised at peak debt: Repayments are frozen during the bridging term until you sell your existing property. You only need to pay your current mortgage and don’t have to manage two home loans.
||Higher interest rate if you don’t sell your property on time: If you can’t sell your existing home within the bridging period, lenders will charge a higher interest rate. Many will also need you to begin making principal and interest repayments on peak debt in order to service both loans, causing financial stress.|
|Standard interest rates from banks: Banks used to charge higher interest rates but now there are lenders with standard variable interest rates.||No redraw facility: If you make repayments during the bridging term but need to redraw for some reason, you won’t be able to do so.
|Similar fees and charges to standard home loans: Application fees apply, but you don’t need to worry about break costs or discharge fees. Keep in mind if you’re likely to sell the property in less than 3 months, lenders won’t generally approve a bridging loan.
||Normal early termination fees apply if you switch lenders: If your current lender doesn’t offer a bridging loan product, you’ll need to switch lenders who will likely insist on taking on your existing mortgage plus the bridging loan. Because they’ll be the ones to take on the entire debt, you will be liable to early termination fees and break costs with your old lender especially during fixed interest periods.|
|Make unlimited P&I repayments: You can reduce your interest bill and make as many principal and interest repayments on the bridging loan until you sell your property.|
|Avoid the cost of renting and moving twice: Renting and having to pay for moving expenses twice may be better than getting a bridging loan, but sometimes it can be more expensive depending on the size and scale of your property. Take inventory of your current home. Speak to a qualified mortgage broker to find out which option is the better choice for your specific case.|
Using The Features Of Bridging Loans
Altering The Purchase Contract
Negotiating A Longer Settlement
Got Questions? Contact Us
Frequently Asked Questions
What Is A Bridging Loan?
Bridging loans can be a great option if you’re looking to purchase a property quickly, as they can be approved and funded quickly. However, it’s important to remember that bridging loans are typically more expensive than traditional home loans, so you’ll need to make sure you’re in a position to repay the loan before taking one out.
If you’re thinking of taking out a bridging loan, it’s important to speak to a mortgage broker who can help you compare the different options available and find the best deal for your needs.
How To Apply For A Short Term Bridging Loan In Melbourne?
- A copy of your contract of sale for the new property
- A copy of your existing mortgage statement
- Proof of income (e.g. payslips or tax returns)
- Proof of identity (e.g. driver’s licence or passport)
How Does A Bridging Loan Work?
- Quick and easy approval: Bridging finance can be approved quickly, often within 24 hours. This can be helpful if you need to move fast on a property purchase.
- Flexible repayment options: You can typically choose how you want to repay your bridging loan, whether that’s through regular interest-only payments or by making a lump sum payment at the end of the loan term.
- Competitive interest rates: Bridging loans typically have lower interest rates than traditional home loans, making them more affordable.