You may have considered renovating and decided against and so now you want to purchase another home. The question is do you really want to have to rent a place so that you have somewhere to live after you sell and before you purchase your new home? Think it through carefully as renting means entering into the often chaotic and cut throat rental market with agents, bonds and references. In addition it means that you will be up for the cost and inconvenience of two packups and removalists.
Many people hope to sell quickly and manage a payout one at the same time as they take out the new loan ie:a simultaneous settlement – in my experience it works about 1 out of every 10 times. It sounds much easier than it is in reality and if you get it wrong the consequences can be terribly frustrating and potentially very expensive.
Just imagine the phone call from your agent saying that your buyer’s loan was cancelled at the last moment causing your sale to fall through and now everything is in flux. The result at best would be an expensive short term loan and very possibly you would be pressured to heavily discount the sale of your existing home in order to get a quick sale – we are talking serious money!
So when clients come to us with this possible scenario we always recommend that just in case we use a lender who will offer a good bridging option ie: a bridging loan, it doesn’t need to be expensive and it can relieve so much stress.
The bridging period is the period between the settlement on the purchase and the settlement on the sale of the existing home. Things to consider;
- you probably have a loan on your existing home and until that property is sold ( and sold means money in the bank ) the existing loan has to be taken into account when calculating your borrowing capacity which means,
- unless you have sufficient income you may struggle to meet the repayments on the two home loans that may exist during the period between the settlements,
- even if you think you can scrape by it is potentially unlikely lenders will agree as they have to use padded figures for expenses and selling costs when making their calculations. They cannot simply ignore the fact that you will have two home loans albeit maybe only for a a few weeks or months.
As a result you may need to plan for a bridging loan – and like so many home loan products there is no single answer but some are much better than others. Bridging finance is not available from all lenders. Then there are lenders who offer pseudo-bridging where they calculate your ability to repay based on the total borrowing (peak debt) and usually charge the full standard variable ( your discount will not apply) which is typically almost 1% over the better rates that you can find.
Then there are the genuine bridging loans from only a few lenders. These lenders will calculate your ability repay based on the final loan amount ( end debt) rather than the short term peak debt. If you have sufficient equity in the existing home they will also allow you the option of only making the end debt loan repayments while capitalising the interest on the bridging amount into the loan. This means that if you can’t afford to make repayments on the peak debt you don’t have to and that can take away a great deal of stress during what is already a stressful period.
Then there are a very – very few lenders who offer you these genuine bridging loans at their normal loan rate – some even allow fixed rate loans.
You have usually 6 to 12 months in order to sell the existing property. This means that you can take your time and hold out longer in order to get the price that you want and that alone can save you thousands of dollars. Many people have heard terrible things about bridging finance but speak to us if you want to hear the good news – 02 9037 4084