There are many types of bridging loans in Australia, and each type has its specifications and requirements. Before applying for one, you need to know the exact type that fits your situation. Here are the tips on how to choose a bridging loan:
Check the interest rate
Interest rates differ from one bridging loan company to another. Some companies also charge a fixed rate, while others charge variable rates. It is essential to understand how these rates work because they could affect your monthly repayments later.
Check the fees
Other than interest rates, you also need to find out more about fees you may need to pay. Some fees include establishment fees, valuation fees, legal fees, and discharge fees. Take all these into consideration when you compare bridging loans.
Check requirements for approval.
Before applying for a bridging loan, make sure that you are eligible. You might have a good credit history, but some lenders have stricter requirements than others. You can enquire with multiple lenders and compare them against each other on their requirements for approval.
Alternatively, contact us, and we will compare multiple lenders and find the best deal for your situation.
Consider the lender’s experience.
While interest rates might seem attractive from some providers, it’s essential to remember that these lenders may not be around in the future when you want to pay back your loan.
Instead, choose a lender with an established track record that has survived through recessions and can demonstrate an understanding of changing market conditions.
Benefits of a bridging loan
Bridging loans are designed to help people make the most of a property opportunity or tide them over until they find long-term funding. They can be used for several reasons, but are most often used to purchase a property before your current home is sold.
The loan bridges the gap between the date you exchange contracts for your new home and the date you receive the proceeds from the sale of your existing property.
There are various benefits associated with bridging loans, including:
Quick access to secure funds
Bridging loans can usually be accessed within a few weeks and provide short-term funding often required when buying at auction or purchasing a property needing repair.
Flexible application criteria
Many bridging loan lenders have more flexible lending criteria than traditional lenders, making it easier to qualify for a loan even if you might not be eligible for another type of loan.
It helps you provide proof of cash.
Property sellers may be more willing to negotiate with cash buyers than buyers who need to apply for a mortgage. A bridging loan can help you demonstrate that you have ready access to funds if needed.
It can help you move fast.
A bridging loan is ideal for buying property quickly on the open market or at auctions, where there is no time for traditional valuations and credit checks.
What about the downsides of Bridging loans?
Bridging loans are a quick and easy way of securing funding for any number of things. From buying a new property to making urgent repairs or renovations, these loans can cover the cost of many things.
However, it is essential to be aware of the downsides and disadvantages of taking out a bridging loan. As with all types of short-term loans, you should fully understand both the advantages and risks of making this kind of financial commitment:
Bridging loans are a short-term solution, and as such, they come with high-interest rates. These rates are usually higher than home loan rates and most other loan types. The amount you’ll have to pay will depend on your provider and the circumstances around the loan.
In addition to high-interest rates, you may also be hit with additional fees from your lender. These can include application fees, settlement fees, monthly service fees, etc. You might also need to get an independent valuation done on the property, which will add extra cost to what you’re already paying for the loan itself.
Understand that a bridging loan is a short-term finance solution, usually between 1 month and one year in length. You’ll need to sell your existing property before the loan ends or refinance it into a long-term home loan within this timeframe to make repayments more affordable.
Need more help to decide if a bridging loan is right for you? Give us a call at any time or fill out the form to get a call back, and we can discuss your requirements, with a free no obligation chat.