Bridging finance is a specialised form of borrowing that can be needed when you’re buying one property and selling another at the same time. At DFS, we arrange bridging loans for our clients as one of our specialist services.
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- What is bridging finance?
- Who uses bridging finance in Australia?
- What can I use bridging finance for?
- Open bridging finance
- Closed bridging finance
- How much can I borrow with bridging finance?
- What are the rates for bridging finance?
- I’m self employed, is bridging finance good for me?
- Where can I get bridging finance?
- How does bridging finance work at DFS?
- Need A Loan?
- Request A Callback
What is bridging finance?
Bridging loans allow you to finance the purchase of a new property while you’re waiting to sell one. As the name suggests, these loans allow you to ‘bridge’ the gap between the funds you have available now and the funds you need to buy a new property.
They are generally short-term, interest-only finance for up to 6 months for the purchase of an existing property, and up to 12 months for one that needs to be built.
When you take out a bridging loan you have two loans in place for a short time – your existing property loan plus the bridging finance. The total amount owing is converted into a single loan for your new property when your existing property is sold.
Who uses bridging finance in Australia?
Bridging finance is used by many Australians to facilitate the buying and selling of properties. Settlement dates for buying and selling transactions often do not coincide, making it a necessary form of finance.
What can I use bridging finance for?
There are two basic types of bridging finance – open and closed. It’s important to understand the difference between the two because there are different levels of risk involved.
Open bridging finance
You can apply for an open bridging loan if you haven’t sold your existing property. However, it’s important to understand that there is no guarantee that your existing property will be sold before the bridging loan’s expiry date. A bridging loan amount must be paid out in full on its expiry date.
In the immediate post-COVID-19 property environment, taking out an open bridging loan is risky. If you have trouble selling, you may be forced to drop your price to make a sale and pay out your bridging loan.
Closed bridging finance
If you already have a future settlement date for the sale of your existing property, you can apply for a closed bridging loan. This is the lower risk option, because the funds will be available to pay out the amount owing on the loan’s expiry date.
How much can I borrow with bridging finance?
The amount you can borrow using bridging finance depends on:
- How much equity (ownership) you have in your existing property.
- Its current value.
- The purchase price of your new property (including associated costs such as stamp duty, conveyancing fees and building and pest inspections if necessary).
- Your ability to make bridging loan interest repayments.
What are the rates for bridging finance?
Interest rates on bridging loans are usually higher than standard home loan rates, especially for higher-risk open bridging loans.
Bridging loans can have different repayment arrangements. Some lenders will require you to pay interest on this finance along with your existing mortgage repayments. Others will only require you to make your existing repayments until your property is sold, with the bridging loan interest being added to your total outstanding balance.
I’m self employed, is bridging finance good for me?
If you’re self employed, it can be harder to get finance from traditional lenders (like banks and other financial institutions), especially bridging finance.
Closed bridging finance can be a suitable option for you if you have a stable income and you can afford your additional interest repayments.
Where can I get bridging finance?
You can get bridging finance from both traditional lenders as well as private lenders. At DFS, we are private lending specialists. Traditional lenders usually have stricter lending criteria.
How does bridging finance work at DFS?
At DFS, we arrange bridging finance for our clients. We have:
- Access to a pool of over 200 private lenders.
- A simple application process.
- No credit checks.
- Fast approvals and settlement.