When purchasing an apartment while still owning your current property, timing becomes crucial. Bridging loans offer a financial solution that allows Airport West residents to secure their new apartment without waiting for their existing property to sell. Margin Finance helps clients access bridging loan options from banks and lenders across Australia, making property transitions smoother for local buyers.
Understanding Bridging Loans
A bridging loan is a short-term loan designed to bridge the gap between buying a home and selling a home. These financial products typically run for 6 to 12 months to sell existing property, or up to 12 months if new property is being built. The loan term usually allows sufficient time to complete the sale of your current property while securing your new apartment purchase.
Bridging loans work by calculating two key amounts:
• Peak Debt - the maximum loan amount when you own both properties
• End Debt - the remaining loan balance after selling your existing property
Should You Buy or Sell First?
The decision between buying or selling first depends on your financial situation and local property market conditions. Airport West residents face this common dilemma when apartment hunting. Selling first provides certainty about available funds but may result in temporary accommodation needs. Buying first secures your desired property but requires bridging finance to manage dual property ownership.
Factors to consider include:
• Current borrowing capacity and loan to value ratio (LVR)
• Stamp duty requirements for the new purchase
• Interest rate implications of temporary dual ownership
• Market conditions affecting sale timelines
Bridging Loan Application Process
Applying for a bridging loan involves a streamlined application process compared to traditional home loans. Mortgage brokers can help assess your borrowing capacity and present options from multiple lenders. The loan application typically requires:
- Bank statements demonstrating financial capacity
- Contract purchase price of the new home
- Valuation of existing property
- Evidence of marketing or sale of current property
Most lenders offer loan pre-approval to provide confidence when making apartment offers. Getting pre-approved helps establish your bridging loan amount and confirms your financial position before committing to purchases.
Interest Rates and Loan Structure
Bridging loan rates typically carry higher interest rates than standard home loans due to their short-term nature and increased lender risk. However, many lenders offer interest rate discounts when the bridging loan converts to a standard home loan or investment loan upon settlement.
Interest rate options include:
• Variable interest rate - fluctuates with market conditions
• Fixed interest rate - locked rate for the loan term
• Interest capitalisation - adding interest to the loan balance rather than monthly payments
Calculating bridging loan repayments involves considering both the loan interest rate and whether you'll make interest payments or capitalise them. An offset account linked to your existing home loan can help reduce overall interest costs during the bridging period.
Lenders Mortgage Insurance Considerations
Depending on your loan to value ratio (LVR), lenders mortgage insurance (LMI) may apply to your bridging loan. LMI protects the lender if property values decline or repayment difficulties arise. Airport West's stable property market conditions often support favourable LVR calculations, potentially reducing LMI requirements.
Managing Peak Debt Period
The peak debt period represents your highest financial exposure when owning both properties simultaneously. During this time, you're responsible for:
• Bridging loan interest on the new apartment
• Existing mortgage payments on your current property
• Ongoing property expenses for both homes
Proper financial planning helps manage this temporary increased financial commitment while working toward selling your existing property.
Converting to Permanent Finance
Once your original property sells, the bridging loan typically converts to standard home loan or investment loan terms. This conversion often triggers interest rate discounts and access to features like offset accounts. The end debt becomes your ongoing mortgage commitment, calculated after applying sale proceeds to reduce the overall loan balance.
Working with Mortgage Brokers
Mortgage brokers provide valuable expertise when considering bridging loan options. They can compare products from multiple lenders, explain variable loan rates versus fixed interest rate loans, and structure finance to suit your specific circumstances. Professional guidance helps Airport West residents make informed decisions about property timing and finance structure.
Bridging loans offer flexibility for apartment purchases when selling and buying timelines don't align perfectly. With proper planning and professional advice, these short-term loans can facilitate smooth property transitions without compromising on your preferred apartment choice.
Call one of our team or book an appointment at a time that works for you to discuss your bridging loan requirements and explore suitable options for your property purchase.
