Understanding Bridging Finance for Property Purchases
As a police officer looking to purchase a new home before selling your current property, bridging finance offers a practical solution to bridge the gap between these transactions. A bridging loan provides short-term funding that allows you to secure your new home without waiting for your existing property to sell.
Bridging loans are typically structured with a loan term usually 6 to 12 months to sell existing property, giving you sufficient time to market and complete the sale of your current home. If your new property is being built, the term can extend to 12 months to accommodate construction timeframes.
Should You Buy or Sell First?
This question often weighs heavily on homeowners' minds, particularly police officers who may face unique circumstances such as:
• Relocation requirements due to posting changes
• Time constraints that don't align with ideal selling conditions
• The need to secure housing in specific areas for work proximity
Buying first with bridging finance allows you to:
- Secure your preferred property without the pressure of a quick sale
- Avoid temporary accommodation costs
- Take time to achieve optimal sale price for your current home
- Eliminate the risk of missing out on your ideal new property
How Bridging Loans Work
When applying for a bridging loan, lenders assess your financial situation using two key debt calculations:
Peak Debt: This represents the maximum loan amount when you own both properties. It includes your new home loan plus the bridging loan amount for your existing property.
End Debt: This is your loan balance after selling your current property, typically just your new home loan.
The contract purchase price of the new home, combined with your existing mortgage balance, determines your peak debt position. Lenders evaluate your borrowing capacity to ensure you can service both loans during the bridging period.
Interest Rates and Loan Structure
Bridging loan rates are typically higher than standard home loan interest rates, reflecting the short-term nature and additional risk. You'll encounter:
• Variable interest rates that fluctuate with market conditions
• Fixed interest rate options for predictable repayments
• Interest capitalisation where interest is added to the loan balance rather than requiring monthly payments
Most lenders offer interest capitalisation during the bridging period, meaning you don't make principal and interest repayments until your existing property sells. This approach helps manage cash flow while carrying two properties.
Loan to Value Ratio and LMI Considerations
Your loan to value ratio (LVR) plays a crucial role in bridging loan approval. Lenders typically require:
• Combined LVR of 80% or less to avoid lenders mortgage insurance (LMI)
• Strong equity position in your current property
• Demonstrated ability to service the peak debt
Police officers may access interest rate discounts through certain lenders, potentially reducing the overall cost of bridging finance. These professional packages can provide valuable savings during the bridging period.
The Application Process
When applying for a bridging loan, you'll need to provide:
- Bank statements showing your financial position
- Loan application with detailed financial information
- Property valuations for both properties
- Contract of sale for your new property
- Evidence of your current property being market-ready
A streamlined application process ensures quick approval, crucial when purchasing property with settlement deadlines. Getting pre-approved or achieving loan pre-approval before house hunting provides confidence and negotiating power.
Calculating Bridging Loan Repayments
Calculating bridging loan repayments involves considering:
• The loan interest rate on your bridging facility
• Whether you choose a fixed interest rate loan or variable loan rates
• The bridging loan amount required
• Interest capitalisation arrangements
Your mortgage broker can provide detailed calculations showing various scenarios, helping you understand the total cost and plan your finances accordingly.
Working with Blue Loans
Blue Loans can access bridging loan options from banks and lenders across Australia, ensuring you receive suitable terms for your circumstances. As mortgage brokers specialising in police officer finance, we understand the unique challenges you face when buying a home or selling a home.
Our team evaluates multiple bridging loan options, comparing interest rates, fees, and loan features. Whether you're purchasing an investment loan or your next family home, we'll structure the facility to suit your financial situation and local property market conditions.
An offset account linked to your bridging facility can help reduce interest costs by offsetting your savings against the loan balance. This feature proves particularly valuable for police officers with regular savings patterns.
Bridging finance provides police officers with flexibility and control over their property transactions. Rather than being forced into unfavourable selling conditions or missing out on ideal properties, you can secure your new home and sell your current property in your own timeframe.
Call one of our team or book an appointment at a time that works for you to discuss your bridging finance options and take the next step towards your new home.
