Menu
Homeowners tend to have a lot of their capital tied up with their property, which means many are either relying on the sale of that home or use of built-up equity to fund the purchase of the next property. If you are planning on keeping your existing property, it is important to understand your borrowing power and the right loan structure to achieve your goal. If you are looking to buy and sell, you may want to know how a bridging loan can work to cover the gap between purchase and sale.
As the name suggests, a bridging loan ‘bridges the gap’ between two home loans. Bridging finance is a good way to buy or build a new property before the sale of your existing home, making the moving process smoother, and more feasible.
If you’ve fallen head over heels for another home, bridging finance could be right for you – but there are a lot of things to consider, including some risks. Your Loan Market adviser will help you understand the ins and outs and find the best bridging loan for you.
When you take out a bridging loan, the lender takes security over both properties and lends against these properties until the sale and purchase process on both is completed. During this period, you pay your current mortgage, and typically interest-only on the new house. When you sell your first property, the proceeds of the sale are applied to the bridging loan, and any remainder becomes the end debt or new home loan.
Closed bridging finance
This is when the sale on both properties – the new home, and your current home – are unconditional, and all you need to do is bridge the gap between the two settlement dates. With some lenders you can have up to six months to sell your home if you are purchasing an established home and up to 12 months if you are building.
Open bridging finance
If you’re looking to buy before selling, you’ll need an open-ended bridging loan. Lenders consider borrowers seeking open bridging loans as higher risk because they can’t provide a specific date for when their property will be sold and the loan repaid. As a result, securing an open bridging loan can be more involved and typically requires more equity in your property.
Taking our bridging finance is an added cost on top of the existing mortgage you’re paying so banks will look closely to make sure you can afford both loans at the same time. During a bridging loan period, your home loan will generally be charged as an interest-only loan – so that you don’t have to pay the principal during the bridging period. Many lenders offer interest rates comparable to the standard variable rate, or only slightly above.
It’s important to be aware of the financial risks associated with open bridging:
If you’re in the market to buy property, it is a good idea to first understand how much you may be able to borrow. This is where home loan pre-approval comes in. The lender will let you know how much it is willing to lend you based on your current circumstances, giving you the confidence to look for properties within your price range. Your Loan Market adviser can help you get pre-approval.
Let us know what your goals are and we will connect you with a Loan Market adviser directly.
Find out how much you may be able to borrow to purchase property.
Understand how much money you have coming in compared to what you spend using this calculator to help you identify where you could save.
Understand the amount you will need to pay your lender before you apply for a home loan and ensure you can comfortably meet your repayments.
Send an email to [email protected] to get in touch.
Looking for a career change? We’re committed to working with you to achieve your goals.
Our Customer Care team is available weekdays, 8:30 AM to 5:00 PM.
With over 100 mortgage advisers throughout New Zealand, we’ve likely got someone just around the corner from you.
©2023 Loan Market
Company Number: 4313118 | NZ Financial Services Group Limited (FSP286965)
The information provided on this site is on the understanding that it is for illustrative and discussion purposes only. Whilst all care and attention is taken in its preparation any party seeking to rely on its content or otherwise should make their own enquiries and research to ensure its relevance to your specific personal and business requirements and circumstances. Terms, conditions, fees and charges may apply. Normal lending criteria apply. Rates subject to change. Approved applicants only.
*Your adviser may charge a fee to cover additional time required by their team. Any fees will be discussed with you in advance so you can make an informed decision before proceeding with your application.
