Mar 21, 2018 6:48:45 AM

Buying and selling at the same time

Topics: Retirement, Mortgages, NZ Finance, Bridging Finance, Home Loan, NZ Property, reverse mortgage, NZ Property Market, Mortgage Debt 0

Timing is often a challenge when it comes to buying a new home and selling an existing one. In a perfect world, both transactions would happen simultaneously. In reality though, you could end up owning two properties while you sell your existing home. That’s where bridging finance comes in.

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Takes the pressure off

In a heated property market, it’s vital you move quickly on a purchase or you could lose out. Bridging finance helps you do just that, by taking the pressure off and letting you buy the home you want when you want it. It means you don’t have to wait until you’ve sold your existing home or have to sell in a rush for a potentially much lower price.

A bridging loan is typically a short-term loan (six to 12 months) that covers both your existing and your new debt. The loan is calculated by adding together the value of your new home with the outstanding debt owing on your existing home, then subtracting the potential sales price of your existing home.

The leftover amount is called the “ongoing balance” or “principal”. Repayments in the time between buying a new home and selling your existing home are generally calculated on an interest only basis. Interest is compounded monthly at the standard variable rate and then added to your ongoing balance which becomes your mortgage when your existing home is sold. 

It’s important you keep up your loan repayments during this time to help reduce the total amount owing on your loan and to ensure you’re not left with a hefty mortgage debt. Keep in mind that during the bridging period, you are essentially paying off the interest on two mortgages, so be realistic about the expected sale price of your existing home as you may need to sell sooner in order to meet the terms of your agreement.

Know when it’s right for you

Choosing the right bridging loan will depend on a number of factors. Here are some questions to consider before deciding on bridging finance: 

  • How long do you need the funds for?
  • How long will it take you to sell your home?
  • Is your home ready for sale or will you need to renovate first?
  • Are you building a new home or buying an established property?
  • Are the buying a residential or an investment property?
  • Can you realistically meet the repayments on your current loan and the bridging loan?

Before you apply

When structured correctly, bridging finance can be hugely helpful, but it’s important you’re equally aware of the risks. Overestimating the sales price of your existing home and taking longer than anticipated to sell can leave you with a sizeable debt so do your homework before committing.

Check all of the loan features and have your mortgage adviser/broker go over the paperwork with you to ensure you understand this form of finance. Contact Mortgage Express to find out if bridging finance is an option for you.

References:

http://www.southerncrosspartners.co.nz/loans/bridging-finance/

https://www.canstar.com.au/home-loans/bridging-loans

https://www.yourmortgage.com.au/home-loan-guide/bridging-loans-bridging-the-gap/77543/

Disclaimer:

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

A Disclosure Statement is available on request and free of charge.