Settling down into your new home is truly a milestone worth celebrating, but after spending some time in what you thought was your dream home, you can have a change of heart. If you plan on purchasing a new property and apply for a new loan on top of an existing mortgage, what can you do to remove your current financial obligations and afford a new real estate property?
When you need immediate cash flow to juggle selling your house and buying a new one, a bridging loan is a perfect solution to pick up after your shortfall. The term may be unfamiliar to many, and even if you have some idea of what it is, bridging loans is a complex process that needs extensive research before you decide to push through with it.
What is a Bridging Loan, and How Exactly Does it Work?
As the moniker suggests, a bridging loan aims to bridge the gap between your two mortgages. It’s an ideal choice for situations wherein you plan to purchase new real estate but are still selling your existing home.
Breaking Down Different Types of Bridging Loans
In essence, a bridging loan is a short-term financing option that allows you to cover your current financial responsibilities for up to a year. Since it typically involves balancing other mortgages, lenders naturally request some form of collateral on top of asking for high-interest rates. There are two types of bridge loans you should know:
- Closed Bridging Loans - When your property is already sold, and you’re only waiting to close the sale, you can go for closed bridging loans as it involves paying off the loan, interest, plus other fees on the date of the sale. This is considered less risky since lenders have peace of mind knowing you have a date of sale on the horizon.
- Open Bridging Loans - If you still don’t have a definite offer on your old home, but have already found the next real estate you plan on buying, then open bridging loans is the right choice since they can be made between 6 to 12 months.
The Bottom Line: Is a Bridging Loan the Right Step for You?
Homeowners, corporations, and individuals in between can use bridge loans for various reasons, though it’s common among homeowners who need help boosting their funds to purchase a new home while waiting for their old property to sell.
While a bridge loan can help homeowners ease the costs involved in balancing two different properties, it’s still a risky choice. Applying for a bridging loan can also be difficult for average homebuyers since you’ll need to have more than 50 per cent in equity to qualify for one.
Are You Looking for the Best Mortgage Lenders in Sydney, Australia?
Finding the right financing options that suit your unique situation can be a daunting task, especially when it involves applying for a new loan when you’re planning to move houses. If the mortgage is still attached, then we can help you bridge your loans.
Wealthy You is one of the leading mortgage companies in Sydney, offering a variety of mortgage solutions that meet every clients' needs. Since we're alternative lending specialists, we provide alternative mortgage funding options that make refinancing your home simple.
Learn more about our services today!