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    Moving house isn’t all sunshine and rainbows. On top of selling your current house, you need to find the perfect new home. And with the added pressure of trying to match settlement dates, it can be exhausting.

    Sometimes that doesn’t happen – and there’s a window where you’re officially homeless or have two mortgages to pay. That’s enough to put anyone off moving – but some things can help.

    With bridging finance, you could buy a new house before you’ve sold your current one. It’s a short-term home loan that buys you time and frees your finances for settling on your new home.

    Usually, there’s a cap of six months – making it a great solution to a short-term problem. Here’s what you need to know about bridging finance.

    Bridging finance explained

    Depending on your situation, your bridging finance will be either open or closed. In both cases, the temporary loan bridges any gap between buying your new home and settling on your old one.

    Bridging finance loans will be on a floating rate. These are typically higher than fixed home loan rates, but you may be able to negotiate an interest-only agreement during your bridging period. You then repay the remaining balance when your existing property is sold.

    Open bridging finance

    Open bridging finance is used if you want to buy a new property before your current one has gone unconditional. You may also use bridging finance as a deposit for a new home before you’ve sold your current one.

    Because there’s no known end date for how long you’ll need the finance, and no guarantee you’ll sell your current home, the banks will see you as a greater risk – and there could be more hoops to jump through. For this reason, open bridging finance is usually only an option if you have decent equity in your home to act as security against the new property.

    An open bridging finance loan could be a risky move if you don’t plan carefully. If your house takes a long time to sell, you could be left with two mortgages to pay. But if you have decent equity in your home and think things through, open bridging finance could be a great solution to bridge the gap between home settlements. These days are very reluctant to approve an open bridging finance.

    Closed bridging finance

    This is the most common type of bridging finance. People use it when they have to settle on their new home before they’ve officially sold their old one. It offers you a short-term home loan to tide you over until your known settlement date. It could be for as long as six months, though it’s usually much shorter – you may only need it for one day.

    Let us explain: If someone buys your house and agrees on a settlement date for the 10th day of the month, but you take ownership of your new property on the 1st, there’ll be 10 days where you own two houses and have two mortgages to pay. Your loan-to-value ratio (how much you own of the properties vs how much you’ve borrowed to pay for them) may be extremely high, too. With closed bridging finance, banks will agree to let you carry two mortgages for a short term.

    Because all the paperwork is signed and done, sale terms are settled and the new owner has legally agreed to take ownership of your current property, there’s a known end date – and you’re seen as a lower risk to the bank. For that reason, getting approval for a closed bridging finance loan is much more straightforward. Typically, the bank will put both the current and new loan on Interest Only payments for the period bridging is required. Before approving the bridging, the bank will ensure your incomes can sustain the mortgage payments and you also have sufficient savings to cover these payments.

    Buy first then sell, or sell first then buy?

    That’s the million-dollar question – and there’s no black and white answer. Whether you decide to buy or sell first depends on your personal situation – things like your eligibility for finance, your urgency to move fast and your other financial commitments all come into play. Whatever way you go about it, bridging finance can span the gap in between – and alleviate any stress. If you’re thinking of moving, get in touch with Global Finance – we’ll talk you through your bridging finance options and ease the house-selling stress.

    Ready to sell or looking to buy? Call us today for a non-obligatory chat – we’ll help sort the paperwork so you can focus on the important parts.

    **These are general guidelines and are by no means a reflection of bank or lending policies