How does a bridging loan work for buying property while selling?

So, you’ve bought a property and have been paying off the mortgage. Now, it’s time to start thinking about what’s next. Purchasing a property certainly doesn’t mean you shouldn’t keep your eyes on the market, and there’s always something out there that can capture your attention and set you thinking about another move. Perhaps you’re looking for a bigger place as your family grows, or maybe you’ve got a new job and would like to live closer to work.

In any case, if you see the perfect property, there’s no reason you shouldn’t pounce on it straight away. Of course, this can be challenging if you’re still paying off a mortgage. Fortunately, bridging loans provide a solution, helping buyers in the period between buying a new home and selling their old one.

What is a bridging loan? 

In essence, bridging loans are designed to allow you to buy another property before you receive money from the sale of an existing one. But how does a bridging loan work? While every lender judges bridging loans differently, this is how they work in general.

A single loan with both properties as security: A lender provides an interest-only payment period of 6-12 months for you to sell your old home. The proceeds of this sale go towards the overall debt, and whatever’s left will be treated as a normal loan on your new property.

What does a bridging loan involve?

Before taking out a bridging loan, it’s important to think very carefully about how easy it will be to sell your existing property. If you can’t complete the sale during the bridging period, you may need to accept a lower price. For this reason, it could be a good idea to get in touch with a real estate agent as soon as you start thinking about selling.

Regardless of the bridging loan type or provider, you’ll need significant equity because in the case of a bridging loan, equity acts as security. If you’d like to find out if you’re eligible, talk to your Mortgage Choice broker today!