Why Should You Consider Bridging Finance for Investment?

For property investors in Keysborough looking to expand their portfolio, timing can be everything. You've found the perfect investment property, but there's one problem - your current property hasn't sold yet. This is where bridging finance becomes a valuable solution, allowing you to buy before you sell without missing out on opportunities.

What is Bridging Finance?

Bridging finance, also known as a bridge loan, is a form of short term property finance designed to help property buyers purchase a new property before selling their existing one. This temporary finance solution provides the funds needed to complete your purchase while you wait for your current property to sell.

The bridging loan amount typically covers the deposit and purchase costs of your new investment property. Once you sell your existing property, you use those proceeds to repay the bridging loan and transition to standard investment loan finance.

How Does a Bridging Loan Work?

A bridging loan essentially uses the equity in your current property as security, combined with the new property you're purchasing. Here's how the process typically works:

1. You apply for bridging finance through a mortgage broker who has access to loan options from banks and lenders across Australia
2. The lender assesses both properties - the one you're selling and the one you're buying
3. Upon bridging loan approval, you receive funds to complete your investment property purchase
4. Your bridging period begins, typically ranging from 6 month bridging to 12 month bridging terms
5. When your original property sells, you use the proceeds for bridging loan repayment
6. You then refinance the new investment property with a standard loan

Understanding Bridging Finance Costs

Before proceeding with a bridging finance application, it's important to understand the associated costs:

Bridging Loan Interest Rate: Interest rates on bridging loans are typically higher than standard home loans due to the short term nature and increased risk. The variable interest rate reflects the temporary nature of this finance solution.

Interest Capitalisation: Most bridging loans offer capitalised interest, meaning the interest charges are added to the loan amount rather than requiring monthly repayments. This reduces your immediate financial burden during the bridging period.

Bridging Loan Fees: Application fees, valuation fees, legal fees, and discharge fees all contribute to the total cost. Some lenders may also charge a monthly account fee.

Exit Strategy Costs: You'll need to factor in selling costs for your existing property, including agent commissions and marketing expenses.

Bridging Loan LVR and Security Requirements

Lenders typically assess bridging loan security by calculating the loan to value ratio (LVR) across both properties. Most lenders require:

• Combined LVR of 80% or less (though some lenders may go higher)
• Sufficient equity in your existing property
• Proof of ability to service both loans temporarily
• A clear exit strategy showing how you'll repay the bridging loan

The bridging loan amount available depends on your equity position and the lender's assessment of both properties' values.

Benefits of Bridging Finance for Investment Properties

Choosing bridging finance offers several advantages for investors:

Buy Before You Sell: Perhaps the most significant benefit is the ability to secure your next investment property without waiting for your current property to sell. In a competitive property market, this timing advantage can be crucial.

Avoid Selling First: You won't need to rush into selling your current investment property at a potentially unfavourable price just to fund your next purchase.

Fast Approval: Many lenders offer quick bridging finance solutions with faster approval times than standard loans, which is essential when you need to act quickly on an investment opportunity.

Seamless Property Upgrade: Transition between properties without the need for temporary accommodation or storage solutions.

Auction Finance: Bridging loans provide urgent finance when you need to secure a property at auction without a finance clause.

Important Considerations and Risks

While bridging finance provides valuable flexibility, investors should be aware of bridging loan risks:

• Higher Costs: The bridging loan interest rate and fees mean this is a more expensive financing option
• Time Pressure: If your property doesn't sell within the bridging loan term, you may face penalties or need to extend the loan at additional cost
• Dual Property Ownership: During the bridging period, you'll own both properties and need to manage the financial obligations of both
• Market Fluctuations: Property values can change, potentially affecting your ability to sell at your expected price

Bridging Loan Alternatives

Before committing to bridging finance, consider these bridging loan alternative options:

• Standard investment loans if you can wait to sell first
• Refinancing your existing property to release equity
• Deposit bonds for certain purchase situations
• Family guarantees to boost your borrowing capacity

The Application Process

When you're ready to proceed with a bridging loan application, working with an experienced mortgage broker can streamline the process. At Ozgroup Finance, we help Keysborough clients by:

• Assessing your financial position and equity
• Explaining all bridging finance costs upfront
• Comparing loan options from multiple lenders
• Managing the application and bridging loan settlement process
• Ensuring you have a solid exit strategy in place
• Coordinating the exchange contract and legal requirements

The application typically requires property valuations, proof of income, details of both properties, and evidence of your ability to service the loan amount during the temporary finance period.

Is Bridging Finance Right for Your Investment Strategy?

Bridging finance works well for investors who:

• Have substantial equity in their current property
• Have identified a time-sensitive investment opportunity
• Are confident their property will sell within the bridging loan term
• Can manage the higher short term loan costs
• Have a clear sell property exit plan

It may not suit investors who are uncertain about their property's saleability or who have minimal equity in their current holdings.

Making Your Investment Goals a Reality

For Keysborough investors looking to expand their property portfolio, bridging finance can provide the flexibility needed to buy your dream home or investment property without the constraints of selling after buying. While the costs are higher than standard finance, the ability to secure the right property at the right time often outweighs these temporary expenses.

Understanding the bridging period, managing bridging loan repayment expectations, and having professional guidance throughout the process are all essential for success with this financing strategy.

If you're considering purchasing an investment property and want to explore whether bridging finance is the right solution for your circumstances, our team at Ozgroup Finance is here to help. As your local mortgage broker in Keysborough, we provide personalised advice and access to a wide range of lending solutions.

Call one of our team or book an appointment at a time that works for you to discuss your investment property goals and explore your bridging finance options.