Monday 11th November 2019

What Are Bridging Loans?

What Are Bridging Loans?

Bridging loans are loans used to buy a new home when you haven’t yet sold your existing home. Sometimes it is helpful to purchase a new home before you’ve sold your old one. In which case, you need a bridging loan to allow you to do so when you can’t yet use the equity from your previous home. It forms the bridge that gets you from the purchase of your new property to receiving funds from your old one, hence the name bridging loan.

The one disadvantage you’ll have to consider is that you’ll need to pay off your original home loan at the same time you’re paying off your bridging loan.

Some of the situations where it makes sense to buy a new home quickly or wait before selling your current house include whether it’s currently a buyer’s market or a seller’s market, interest rate changes and seasonal changes. If you do decide to buy early, there are a few advantages and disadvantages associated with buying before you’ve sold your house. Some of them include:

Advantages

  • Don’t need to move into a rental property while you wait until you buy your new house.
  • Don’t have to worry about finding a house quickly as you have a current home you live in.
  • Take advantage of current favourable market conditions instead of waiting until after you’ve sold to buy, and conditions are no longer favourable for buying.

Disadvantages

  • Bridging loans are generally higher in interest than standard home loans.
  • If you are unable to sell your old home for the price you were expecting, then you’ll need to secure extra funds to cover the loan.
  • Having to cover the cost of repaying two different home loans at once.

If you’re considering buying a new home and are considering buying it before you’ve sold your current one, then a bridging loan is an option to consider.

If you’d like to learn more about bridging loans and your options for home loans, then please get in touch with us today.