A bridging loan is a short-term financing that is usually used to 'bridge the gap' between buying a property and selling another. It covers the advance payment or purchase price of your desired property whilst allowing you to sell your existing home. However, it can also be used to fund a variety of purposes, whether for personal or business use.
A bridging loan can be taken on top of your existing home loan (usually for up to 12 months). The two common types in Australia are closed and open bridging loans. The closed type could be useful if there’s already a date when your property will be sold by. On the other hand, open bridging loans don’t have an agreed settlement date and could be useful if you don’t have a buyer yet.
How do you know if a bridging loan is right for you? Here are some common reasons why borrowers choose bridging loans for personal and business uses:
A bridging loan offers fast approval.
Typically, bridging loans are processed quickly and easily, with minimal paperwork. In addition, many lenders like Mango Mortgages allow borrowers to apply for a bridging loan online, that is, less the hassle of requirements. This is unlike the traditional lending practices, where lenders usually require tedious paperwork before an application gets approved.
You can use it for a variety of purposes.
Bridge finance is a versatile facility that can be used for various purposes. Bridging loans are commonly used to ‘bridge the gap’ between buying and selling properties, though they’re also used to facilitate renovations or repairs on a property, raise capital for business use, to consolidate debt or pay for a large (often unexpected) expense.
Other common uses of bridging loans are the following: education, business expansion,deposit for a new property, buying a new car, legal or medical costs.
It is a short-term solution.
Commonly, bridging loans are utilised to alleviate cash flow crunches for three to six months (though sometimes up to 12 months). This is advantageous if you don’t want a long-term commitment to a loan.
Borrowers with impaired credit can often get a bridging loan.
Many people with bad credit find it difficult to buy a property. This is mainly because bad credit reports remain on their file for years, and they can’t get an approved loan. The good news is that there is an increasing number of bridging loan lenders that accept credit-impaired borrowers. As long as you have a sound exit strategy or plan to repay the loan, even if you have impaired credit, you can get a bridging loan.
It has flexible repayment options.
A bridging loan is renowned for having flexible repayment schedules to suit your circumstances. From 2 to 24 months, even 36 months, you have the option to repay the loan in the shortest time possible.
With its flexible repayment option, you may opt to pay the loan once you have the fund to avoid higher interest rates. This will help you avoid the hassle of overlapping loans, if you have other financial obligations on hand.
There is a flexible opportunity for your home for sale.
When you get a bridging loan, you are allowing some time for your current home to raise its market value whilst you can pay for down payment for the new property. In real estate, properties rapidly appreciate, and you can use this opportunity to upgrade your old home for sale whilst settling already to the new one.
A bridging loan helps lessen the pressure when selling an existing property.
Whilst bridging loans help you to not miss on a property you’ve been dreaming about as you wait for the current one to sell, it reduces the pressure to sell your existing property in a hurry. Not only does it give you more chances of higher sales, but it also helps you reduce or avoid the cost of temporary rental or storage.
There are numerous bridging loan lenders.
Among the numerous providers of bridging loans in Australia are banks, non-banks, specialist lenders, fintechs and private lenders.
How do you apply for a bridging loan online?
A bridging loan could be a good option if you prefer fast-moving applications and less hassle on visiting on-site offices where applicants need to fall in line and wait in queue.
With an online application being increasingly preferred as it’s quick and convenient, many lenders turn to online processes and allow borrowers to apply for a bridging loan online. However, take note that the application criteria and processing times vary from one lender to another. Typically, non-bank and specialist lenders, as well as fintechs, tend to require less paperwork, and they provide faster processing.
Key takeaway
A bridging loan could be worth considering if you need to act quickly to seize an opportunity or buy a property. To ensure you’re getting the most suitable loan for your requirements, consult with your finance broker.
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