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The purpose of a bridging loan is to provide you with a short-term financing option for transitioning between the purchase of a new home and the sale of your existing one. To understand how this type of loan works, it helps to think of it as an interest-only loan with a specific term.
Your total payments during this specific period will depend on the lender and the structure of the loan. Some bridging loans require you to continue paying off your regular loan as you always have, while at the same time paying interest on the bridging loan. But with other bridging loan structures, the interest is added to the loan, so you’re not expected to start paying it off until you sell your existing home. Either way, because the interest compounds monthly, the longer it takes to sell your property or start paying interest, the more interest will accrue.
Bridging loans aren’t automatically available to all borrowers. While different lenders have different assessment criteria, many will look at the equity in your existing home before deciding on your creditworthiness and borrowing power. They will also need you to meet their serviceability measures, which include evidence of your income, expenses and other commitments.
It’s less difficult to get a bridging loan if you are in the process of selling your home. Apply for a ‘closed bridging loan’ if you have already exchanged contracts and your settlement day is fixed.
How are bridging loans calculated?
The Peak Debt is used to calculate how much interest you owe in the time leading up to the sale of your existing home.
Learn how much you can save through refinancing.
- Your property sells for less than you anticipated
- Your property takes ages to sell