As you might already know, moving to a new house comes with a painful challenge not only physically, but also emotionally. Parts of the struggle are the logistical challenges of transporting decades worth of personal belongings and emotional attachments from the place. Financing for the new house can also add up to the list.
Imagine if the payment of your old property won’t come on time to finance your downpayment for the new one. Fortunately, besides cancelling your plans to move, you can also opt for the so-called bridging loan.
From the name itself, bridging loan is a “bridge” from the time you get the sale proceeds of your old property to the payment due date of your purchase for the new one.
As it only serves to extend across the two, the loan contract usually only lasts between 6 to 12 months. The loan amount usually ranges from 15 to 20 per cent of the new property value with an annual interest rate of about 6 per cent. Offers vary depending on the banks, but these are the usual numbers.
As time is a critical factor, loan approval can be as fast as within a day. The funds will then come out no longer than three weeks.
Depending on your needs and preferences, there are two general types of bridging loans.
In this type of loan, the funding covers the entire amount of your new house. You will not start repayment unless you completely get all the sale proceeds from your old house. The interest adds up for the whole duration of the loan tenure.
In this type of loan, you simultaneously pay up the home loan for the new property and the bridging loan. Mostly, you have a one-year deadline to completely accumulate all your sales proceeds to repay this loan.
There are two good reasons why you have to get a bridging loan.
The first one is when you have limited time to buy at a property auction. Personal loans and other types of credit can take a longer time to gain approval.
The second reason is when you sold your property through collective buying, also known as en-bloc. Here, buyers may take about 6 to 12 months to get your payment. Because of time constraints, perhaps you aren’t willing to wait that long to get a new house.
Frankly speaking, bridging loans are expensive and impractical if not done for the right reasons. If you can extend more patience, then you can save more money for your future. In the end, it all depends on how much you value your time and the money you have on hand.