Bridging Finance...how does it work?

Bridging Finance: A loan taken where the purchaser wishes to buy a new property before selling their existing property. The lender will take security over both proper­ties until the initial property is sold.

So very very handy when you don’t want to have to pack up and move twice! It also allows you to commit to that dream home that you find immediately after you decide to just sell yours first and then see what’s on the market.

OK, there are pitfalls:

• you have to have a tonne of equity in your home to qualify,

• interest can add up

• and you’re taking a risk if you can’t sell your place,

• but honestly worth a look at.

Bridging loans differ from regular loans because they generally test your “affordability” for the loan (whether the bank thinks you can afford it or not) based on what you’ll owe at the end and not the total loan on both places (which few people would qualify for), and, they usually have a function built in for saving you repayments while you sell your old home, like the ability to add the interest to the loan, or repayments based on only your “end debt” (what you will owe after the sale).

Another option you can consider is to negotiate an extended settlement period on your sale, which can be adjusted if you need to settle sooner. This allows you the comfort of knowing that your home is sold & what money you have to play with & a little time to find your next place.

I’ve been in the situation myself where I haven’t wanted to sell my home – in case I couldn’t find anything decent to buy, so I completely understand the reasons for bridging finance.