Bridging finance is a short-term home loan that helps you buy and sell property at the same time.
It’s a situation you might find yourself in if you’re buying a new house but still need to sell your old one to fund the purchase. Technically, it means you’ll have to service two loans at once for a while, but the bridging finance loan can often be set up as interest-only to reduce your outgoings. It’s important to get your bridging finance structured correctly so that it doesn’t leave you with a larger-than-necessary ongoing debt.
There are two different kinds of bridging finance. Closed bridging finance applies when you’ve already sold your existing property and agreed on a settlement date. In the meantime, you’ve bought a new home that settles before the sale of your old one. Therefore, for a short time, you will own both properties and their associated debt. While carrying that amount of debt would normally be against your bank’s lending rules, they have the assurance of knowing the exact date and amount your old house will sell for, and that the money will bring you back to an acceptable level of debt.
Open bridging finance applies when you’ve bought a new home but haven’t sold your old one yet. You have agreed to buy the new property but don’t know when or for how much you will sell your old property. This is a much riskier scenario than closed bridging finance because the bank doesn’t know when you will be able to repay your bridging loan. Your old house could take many months to sell, and it might not achieve the price you were expecting. For this reason, New Zealand’s main banks do not offer open bridging finance.
Regardless of which situation applies to you, there are a number of standard and non-traditional lenders who may be able to offer you bridging finance. Talk to us today to discover your full range of options, and to make sure your bridging finance is structured to your best advantage.