Bridge finance can be useful for if you’re buying and selling a home at the same time. When you buy a new home before you’ve sold your current place you will need some sort of finance or loan to help you afford owning two properties at once.
Bridge finance explained further:
These loans typically have interest rates that are generally higher. The interest amount you are provided by your lender may be based on your individual risk profile. It is also based on you circumstances.
Some lenders will allow you the flexibility of choosing a fixed or variable rate.
Bridge loans typically have a shorter term (usually 6 to 12 months).This has the advantage of not saddling you with long term debt.
It’s important to know how your mortgage repayments are calculated during the bridging period. While the sale of the existing home goes through, the minimum repayments are usually calculated on an interest-only basis. Rather try to make some repayments just in case you have trouble selling your current place, so you will not have an additional 6 months repayments added to your loan amount. This is why it’s important to do your research to see what the asking prices are and how long homes are generally listed before they’re actually sold.
You should ensure that you have enough equity in your existing property to cover the purchase of your additional property.
It provides you with the benefit of time.
This type of finance can be structured in two ways:
- As a way of completely paying off the existing loans on your current property.
- It can also be opened as a second or third mortgage for the sole use as a down payment for the new property.
If you don’t understand how bridge finance works, a mortgage broker will be able to guide you through the whole process.