Understanding Bridging Finance for Investment Properties
Bridging finance provides property investors with the flexibility to purchase an investment property before selling their existing property. This short term property finance solution eliminates the need to sell first, allowing you to capitalise on investment opportunities without timing constraints.
For Richmond investors, bridging loans offer temporary finance that bridges the gap between purchasing your new investment property and settling the sale of your current property. The bridging period typically ranges from 6 month bridging to 12 month bridging terms, giving you adequate time to achieve your sell property exit strategy.
How Bridging Loans Work
A bridge loan enables you to buy before you sell by using your current property as bridging loan security. The bridging loan amount is calculated based on the combined value of both properties, with lenders typically offering loan to value ratio (LVR) options up to 80% without requiring additional security.
Key features of bridging finance include:
• Capitalised interest - Interest payments are typically added to the loan balance during the bridging loan term
• Fast approval process to meet tight settlement deadlines
• Flexible bridging loan repayment options
• Access to loan options from banks and lenders across Australia
The bridging loan interest rate is usually higher than traditional mortgages due to the short term nature and increased risk profile. However, this premium reflects the convenience and speed of accessing urgent finance when investment opportunities arise.
Benefits of Using Bridging Finance
Bridging loans offer several advantages for investment property purchases:
Auction Finance Capability: Secure finance approval before auction day, giving you confidence to bid without finance conditions.
No Rush to Sell: Avoid the pressure of selling your current property quickly at below-market prices. Take time to achieve optimal sale results.
Seamless Property Upgrade: Purchase your investment property when the right opportunity presents itself, rather than waiting for your sale to settle.
Market Timing: Capitalise on favourable market conditions for buying without being constrained by your selling timeline.
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Book a chat with a Mortgage Broker at AXTON Finance today.
Understanding Bridging Finance Costs
When considering bridging finance, it's important to understand the complete cost structure:
Bridging loan fees typically include:
• Establishment fees
• Valuation costs for both properties
• Legal fees for bridging loan settlement
• Monthly or quarterly interest charges
The variable interest rate for bridging loans is generally 2-4% above standard investment loan rates. Some lenders offer interest rate discounts for clients with strong financial profiles or existing banking relationships.
Bridging Loan Application Process
The bridging finance application process involves several key steps:
- Financial Assessment: Lenders evaluate your ability to service both loans simultaneously
- Property Valuations: Both your existing property and intended purchase require professional valuations
- Exit Strategy Verification: Demonstrate a clear plan for bridging loan approval and eventual repayment
- Documentation: Provide evidence of exchange contract for your new investment property
At AXTON Finance, our team understands the urgency often associated with bridging finance applications. We work with multiple lenders to secure quick bridging finance approvals, often within 48-72 hours.
Alternatives to Bridging Loans
While bridging finance offers unique advantages, consider these bridging loan alternatives:
Equity Release: Refinancing to release equity from your current property may provide funds for your investment purchase.
Line of Credit: Establishing a credit facility secured against your existing property can provide ongoing access to funds.
Deposit Finance: Some lenders offer short-term facilities specifically for deposits, with lower costs than full bridging loans.
Managing Bridging Loan Risks
Bridging loan risks include:
• Extended Settlement Delays: If your property sale is delayed, you'll need to service both loans longer than anticipated
• Market Fluctuations: Property values may change during the temporary finance period
• Higher Interest Costs: Extended bridging periods increase overall financing costs
Mitigate these risks by:
• Maintaining realistic property sale expectations
• Having contingency funds available
• Working with experienced professionals throughout the process
Choosing the Right Bridging Finance Solution
Selecting appropriate bridging finance depends on several factors:
• Loan amount requirements
• Bridging loan LVR across both properties
• Timeline for your property sale
• Exit strategy certainty
• Interest capitalisation preferences
Working with experienced mortgage brokers ensures you access competitive bridging loan options suited to your investment strategy. We can help you compare bridging loan refinance options and structure facilities that align with your financial objectives.
Bridging finance can be a powerful tool for property investors seeking to buy before you sell. While costs are higher than traditional financing, the flexibility and timing advantages often justify the premium for strategic property acquisitions.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can support your investment property goals.