Finding your next home can happen before you have sold the one you’re living in.
You may have found the right property and need to act quickly, while your existing home is still on the market. You might also prefer to secure your next home first and have more time to prepare your current property for sale.
MA Money Bridging Loans can provide short-term finance to help eligible borrowers purchase their next property before selling their existing home.
In this article
- How bridging loans work: Understand how bridging finance may help you buy your next property while you prepare to sell your existing home.
- What happens during the bridging period: Learn about peak debt, the impact of capitalised interest and the loan position after your existing property is sold.
- Bridging loans for self-employed borrowers: See how Alt Doc income verification may provide an option for eligible self-employed borrowers.
- A buy first, sell later example: See how bridging finance could help a growing family secure a larger home while their existing property is still to be sold.
What is a bridging loan?
A bridging loan is a short-term loan designed to help finance the purchase of a new property before an existing property has been sold.
During the bridging period, the loan can cover the finance required for the new purchase alongside the existing property debt. The highest amount owed during this period is known as the peak debt.
Once the existing property is sold, the sale proceeds are generally used to reduce the loan. Any remaining loan balance is known as the end debt, which can then continue under the applicable residential lending structure and will be subject to scheduled periodic repayments.
How much can you borrow with a bridging loan?
The amount you can borrow with a bridging loan depends on your circumstances, the value of the properties involved and the applicable lending criteria.
MA Money Bridging Loans are available with peak debt of up to $5 million and up to 80% LVR, with terms of 6 to 12 months.
Your mortgage broker can work through the numbers with you, including:
- the value of your existing property
- the amount owing on your current home loan
- the purchase price of the new property
- the expected peak debt
- the likely end debt after your existing property is sold.
Understanding these figures early can help you assess whether bridging finance could support your move.
Do you have to make repayments during a bridging loan?
MA Money Bridging Loans allow interest and fees to be capitalised during the bridging period.
This means eligible borrowers may be able to defer interest and fee payments while they are waiting for their existing property to sell. Instead, the interest and fees are added to the loan balance during the agreed bridging term. This increases the overall loan balance and total repayment cost at the end of the bridging period, which borrowers should consider when assessing its suitability.
Capitalised interest forms part of the peak debt, so your broker can help you understand how the interest and other applicable costs could affect the overall loan position.
Once the existing property is sold, the proceeds can be used to reduce the loan and establish the applicable end debt.
Can self-employed borrowers get a bridging loan?
Yes. MA Money offers Full Doc and Alt Doc options for eligible self-employed borrowers applying for a Bridging Loan.
Alt Doc provides another way to verify income where a self-employed borrower has a shorter trading history, or their current business position is better reflected by recent financial information.
Your mortgage broker can help determine which income verification option may be appropriate for your circumstances.
Example: How could bridging finance work for a growing family?
Consider a family who has found the home they want but has not yet sold their current property.
One of the borrowers is a dentist who established their own practice 12 months ago after several years working as a PAYG employee. Their partner is a PAYG professional, and they have recently welcomed their third child.
The family wants to move into a larger home. Their existing property is valued at $3 million, with $1 million owing on the current mortgage. They have found a new property for $4 million, but their existing home has not yet sold.
A bridging loan could give the family a way to secure the new property while allowing time to sell their existing home.
They also opted for Alt Doc assessment which is available for eligible self-employed borrowers with a shorter trading history. The family used the bridging structure to buy their next home first, then used the eventual sale of their existing property to reduce the loan.
The final lending position would depend on the application meeting MA Money’s eligibility and lending criteria.
What happens when your existing home sells?
Once your existing property is sold, the sale proceeds are generally used to reduce the bridging loan.
The remaining balance becomes the end debt. MA Money offers a range of end debt options, subject to the applicable lending criteria. You should also consider what would happen if your existing property does not sell within the agreed bridging term, as this could affect repayment obligations and the overall lending position.
Your broker can help you estimate the likely end debt before you proceed, so you have a clearer picture of your lending position after the sale.
Is a bridging loan right for you?
A bridging loan could be worth discussing with your mortgage broker if you have found your next property, but your existing home is still to be sold.
The right structure will depend on your property values, existing debt, new purchase price, income, expected sale and the applicable lending criteria.
MA Money offers Bridging Loans with 6 to 12 month terms, capitalised interest, a range of end-debt options and Full Doc and Alt Doc alternatives for eligible borrowers.
If you are considering buying before you sell, speak with an accredited mortgage broker about your options. They can work through the numbers with you and help determine whether a bridging loan could suit your circumstances.
This article provides general information only and does not constitute financial, tax or legal advice. It does not take into account your personal objectives, financial situation or needs. You should seek independent advice from a licensed professional before making any financial decisions. Applications for credit are subject to eligibility and lending criteria. Fees, charges and T&Cs apply and are available on request. MA Money Financial Services Pty Ltd ACN 639 174 315 Australian Credit Licence 522267.
