When you want to buy a new home before selling your existing home you may approach your bank for a loan to cover the period between buying and selling.
This is known as bridging finance as it “bridges the gap” which is expected to be short term.
Unfortunately your bank is unlikely to approve a bridging loan when there is no certainty, regardless of status with the bank.
“I had a call this week from a gentleman who had 40+ years of excellent banking history with Westpac. He had four freehold properties and the bank still refused to offer any bridging finance which shocked him. We managed to show him a range of bridging loan options so he could select the one that best suited the situation.”
Banks deem that bridging loans are too risky, even when logic suggests they are not.
There are a number of non bank lenders that offer bridging loan options, but they vary a lot.
Finding The Bridging Loan Options
Non bank lenders will often take a more “sensible” look at an application for a bridging loan.
They calculate the deemed risk of a loan and tend to price for that risk.
There are bridging loan options, but they can vary a lot too.
When you are looking for a bridging loan there are a few things to consider;
The Loan Amount – you should work out how much you need and ensure that the request is made for the correct amount. Some of the non bank lenders can only fund small bridging loans and others can do the larger ones so it’s best to deal with an adviser that specialises in these types of loans and has relationships with a number of lenders, rather than most mortgage brokers whom may have just a couple of options.
The Loan Term – make sure that you give yourself time to complete the transactions and maximise the value. The lenders will structure the loans differently and some will charge you significant fees should you need to extend the loan term.
The Fees Charged – there are fees when you use non bank lenders and you need to understand what they are and factor those costs in your decisions. With short-term loans like bridging loans the fees are often more significant than the interest rates, and yet people will often not consider the bridging loan options and end up paying too much. There are generally three major fees; (1) the lender fee, (2) the adviser fee and (3) a fee to exit the loan early.
Interest Rates – of course everyone focuses on interest rates and wants the lowest, and while this is a major consideration with short term loans the fees can often have a larger impact than the interest rate.
When you are looking at bridging loan options you need to consider all of this.
Compare The Bridging Loan Options
A good mortgage adviser will know which lenders to approach and will seek to get you the best overall deal that suits what you require.
The adviser will be able to give you options and also advice.
In seeking a bridging loan this week we spoke to a number of our lender partners about a bridging loan and presented these options
The loan was for $2,500,000 with capitalised interest and no early repayment costs.
The best two options that we have were;
- For 6-months at 5.15% with total fees of 1.75%
- For 12-months at 5.99% with total fees of 1.50%
Some other options were provided but they either had significantly higher interest rates or larger fees … or both.
It’s quite common for interest rates on bridging loans to be around 7 – 8% and fees between 2-3% so we were happy with what we were able to offer.
In this case above our thinking was the client would be best with the first option if you are confident that they can sell and settle within 6-months.
The overall cost (interest and fees) looks to be about 8.65% versus about 8.99% for the second option.
Non Bank Broker Offers Choices
The advantage of working with a non bank broker is the availability of choices.
As specialists in this type of lending we know which lenders have the best options, and it’s often not the larger or more well known names.
There are a lot of lenders throughout the country and over the years we have established relationships and a reputation with a number of them which enables us to offer the best choices when it comes to these types of loans.
Talk to us if you need to know your bridging loan options too.
