Buying before you sell

A bridging loan – or a relocation loan as it is sometimes known – allows a buyer to exchange on a new property before their existing property sells.

This type of finance gives a borrower a second loan for an interim period while they sell their existing property. They have to be in a position to service a new loan, whilst maintaining an existing loan – which is why it’s important for these buyers to speak with a broker before making a decision.

Bridging finance usually comes with higher costs compared to regular loans. If a buyer has confidence that their current property will sell, and they have the financial capacity to be able to carry all the costs, such as interest on both mortgages, then it might be an option to consider.

A bridging loan usually gives a buyer the green light to exchange on a new property before their existing property sells. It kicks in upon settlement of the new purchase and the borrower pays interest on it until the sale of their former property goes through. It’s at this point that the money from the sale transfers to paying off the bridging loan – this could pay off all of the loan of a portion of it, to lower the overall mortgage.

Remember, every lender is different and some of them won’t even offer this finance option. If you’re working with clients that a relocation loan might suit, speaking to a broker will be able to determine if there’s an option out there that will work.

Sourced: www.loanmarket.com.au