Category: Moving House

Pros

• You can buy your new property right away: You don’t have to wait to get a loan.
• It gives you time to get a better price on your property: You can avoid the stress of having to sell your property quickly. By taking the time, you may be able to get a better price for your property.
• Interest-only repayments which are capitalised on your peak debt: Your bridging loan repayments are usually ‘frozen’ during the bridging term until you sell your existing home. You’ll only have to keep paying your current mortgage and not have to worry about managing two home loans.
• Banks charge standard interest rates: In the past, banks charged a higher interest rate for bridging loans but now there are some lenders that charge standard variable interest rates.
• The same fees and charges as a standard home loan: Application fees are the same and you don’t have to worry about break costs or discharge fees for paying the loan off quickly. Keep in mind that most lenders won’t generally approve a bridging loan if you’re likely to sell the property in less than 3 months.
• You can make unlimited P&I repayments: To reduce your interest bill, you can actually choose to make as many repayments on the bridging loan until you sell your property.
• Avoid the costs of renting and moving twice: Sometimes renting and having to pay for the costs of moving twice may be a better option than getting a bridging loan. It’s important to speak to a qualified mortgage broker so they can help you do the sums to find out which option is better for your situation.

Cons

• Interest is compounded monthly: Although the interest is capitalised on top of the peak debt, the longer it takes to sell your property, the more your loan will accrue interest. Interest is compounded on a monthly basis.
• You need to pay for two valuations: This will be a valuation of both your existing property and the new purchase.
• Higher interest rate if you don’t sell the property in time: If you don’t sell your existing home within the bridging period, a lot of lenders will charge a higher interest rate. Many will also require you to start making principal and interest repayments on the peak debt in order to service both loans. This can cause financial stress.
• No redraw facility: If you choose to make repayments during the bridging term but need to redraw for any reason, you won’t be able to do so.
• Normal early termination fees will apply if switching lenders: If your current lender doesn’t offer a bridging loan product, you’ll have to go with another lender that will likely insist on taking on the entire debt (your existing mortgage plus the bridging loan). Because you’re switching lenders, you may be liable for early termination fees and break costs particularly if you’re switching during a fixed interest period.