It is common for people to sell their current home first, then rent a temporary home while they search for a new home to buy with the proceeds of their former home. They know exactly how much cash they have and how much they need to borrow for the proposed new home. There is no sale price risk but there is significant inconvenience in having to move twice, once into the rental and again into the new home. Sometimes people find themselves in the situation of finding a new home before they have sold their previous home. It may be that they want to buy first, then be able to calmly move to the new home, and then be able to clean up or renovate the former home to achieve a better sale result. In this situation, the people need what is traditionally referred to as a bridging or relocation loan.

 

A bridging loan is where the lender provides funds for the purchase of a new home and takes both the former home and new home as security. If the former home has a home loan balance then that will also need to be refinanced to the new home lender. The loan balance after new home purchase and former home refinance is known as the peak debt and repayments are not required (or interest only payments) during the bridging period of 6 to 12 months. Once the former home is sold, the funds from that sale are used to repay the bridging loan peak debt balance. Any bridging loan balance after the sale is known as the end debt. This end debt then functions just like any other home loan.

 

Ultimately, the decision to undertake a bridging loan structure will require the consideration of various finance, property, and risk factors unique to the borrower. If you are considering relocating to a new home before selling your current home, we are able to help you understand the various options available and how they can be navigated with minimised risks.