The ins and outs of bridging loans

The ins and outs of bridging loans

Interest rates are going up at alarming speed, the cost of living is skyrocketing, and our treasurer has promised things are going to get worse.

It is a perfect storm of conditions that threatens all Australians, from investors to struggling families.

Across Australia, one in five homeowners is under mortgage stress according to Domain in their article; the shocking number of Australians at risk of mortgage stress

If you are an investor feeling the pinch, you can feel helpless. But there are some little-known financing options that could save you thousands and ease the stress. A bridging loan is a short-term loan used to finance the purchase of a new property while you sell your current one. Let’s imagine that you’ve found a property you want to purchase but haven’t yet sold your current home. A bridging loan will close the gap between the new purchase and receiving settlement funds from your sale.

Also Read: Bridging loan – best solution to buy a new property when the old one hasn’t sold

What is a bridging loan?

A bridging loan gives investors the ability to move into a new home on their terms. They can achieve a sale price that is more aligned with their expectations or more accurately reflects their property’s value. It also saves households from needing to rent or find temporary accommodation in the interim between buying and selling. It ensures that you are in control of your finances and gives you the certainty of ownership in a challenging market. It gives you one less thing to juggle, which matters when the expenses seem to keep mounting.

How much would a bridging loan cost?

As with all rates they are variable and depend on the behaviour of the Reserve Bank. But generally bridging home loans have slightly higher rates than home loans, especially if you do not sell your property within the loan term.

How would I structure my bridging loan?

There are many ways to structure your bridging loan, but it will depend on a few variables, such as your home or commercial property equity and the lender or private lender you decide to use.

The best way to structure a bridging loan is to add it to your existing loan, including the new property as security collateral, where you will capitalize your interest payments until the time you sell your current property, usually for a period of 3 to 6 months.

It is important to be aware of all your options. Bridging loans are just one pathway to achieving your financial goals and should be a part of many investors’ decision-making process.


About the author

Ulrika Lobo

Ulrika Lobo is the lending specialist at Sparrow Loans and has over ten years of experience in the commercial business loan space. Ulrika co-founded Sparrow Loans to provide Australian SMEs with a faster and easier way to access finance. Ulrika is responsible for managing the lending process from underwriting to execution and settlement and post-settlement support.