Bridging Loans – a bridge too far?
Bridging loans have a reputation that they are scary and expensive and for some that is exactly what they can feel like. Many people who take this path regret the decision and feel the stress and pressure it places on them. They can feel forced to sell their existing home just to make sure that they can settle in time – and heaven help you if you tell your sales agent you have already bought and must sell your home. Suddenly the price expectations can drop considerably.
However, if you rushed out one weekend and found and bought the ultimate dream home before you considered how to pay for it, you could find yourself paying loans on two homes at the same time – at least until your old home sells. That situation is called a bridging loan.
Bridging loans are not more expensive in interest rates than normal owner occupier loans and you can borrow up to 90% loan to value ratio on both properties while the facility is in place.
You can even only pay interest only throughout the period the two loans are in place but this loan set-up can usually only be for a maximum of 12 months, after which time, if you haven’t sold, your debt can be placed into the control of a collection agency so you must move quickly to make sure you have sold.
The debt servicing is worked out on the remaining debt after your first house has been sold – not the total, so this is hopefully manageable as this is the debt level you intend to have once your home is sold.
Always ask a broker to check your servicing before you go and raise your hand at auction and a pre-approval can easily be put in place to give you some reassurance on this matter.
While obtaining a business loan is often the first thought people have when experiencing cash flow issues, maybe the business model needs reinvention. These interactive sessions will use Case Study examples which the audience will workshop, and explore options to assist any business and their cash management.
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Louise has been nominated for the 9th Annual Readers Choice Awards hosted by Your Investment Property magazine in the Mortgage Broking section.
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