Bridging Loans

Before you buy your new house, you should sell your current house first then purchase your new home.  Unfortunately, things do not always turn out according to plan.  Even when you have sold one property before buying the new home, settlement on two properties can be tricky.  No matter how organized you are, sometimes circumstances can prevent you from selling one property before purchasing another.

In times like this, you will find bridging finance particularly useful.  Bridging finance is a service offered by lenders to help solve the problem of coordinating settlement on one property with the purchase of another.  A bridging loan is a valuable contingency plan when you have to transit between two properties.

How Bridging Loan Works

If eligible, your lender will loan you the money to cover the gap between settlement and purchase with a bridging loan.  Essentially, the lender will provides you with two mortgages. Typically, a bridging loan will cover a period from a few days to a few months.

Borrowers must show that they can pay their existing mortgage as well as interest costs on the new loan in order to qualify for a bridging loan.  Lenders are also likely to charge exit fees from existing loans, establishment charges for the new loan, valuation fees, legal fees and penalties if you exit a fixed loan.

In most cases, lenders will apply strict criteria to bridging finance before giving approval. Conditions could include the unconditional sale of a borrower’s existing property and restrictions on proposed settlement terms.