Pros and Cons of Bridging Finance
Bridging finance is a short-term loan that helps you buy a new home before selling your current one.
However, taking out a bridging loan is a big decision that could see you more than double your mortgage outgoings. Furthermore, bridging finance doesn’t come cheap. On top of potential set-up fees, you will normally pay a premium on standard interest rates (+0.50% on top of floating). And so, it’s essential to go in with your eyes wide open.
This article provides an overview of the pros and cons of bridging finance. Of course, everyone's situation is different, so we encourage you to contact your Loan Market mortgage adviser for an in-depth discussion.
Pros of bridging finance
- You can act faster: Cashed-up buyers naturally have an advantage in the current red-hot housing market. Bridging finance levels the playing field and allows you to move more quickly should your dream home pop up unexpectedly.
- You may only need to pay interest on the new loan: You can get an interest only bridging loan, rather than principal and interest so you only pay the minimum required while the bridging loan is in place until your existing property settles.
- You won’t need to rent your home until it is sold: Most properties sell quickly in the current market. However, some people have to rent their homes to pay for the mortgage while they wait for a sale to be finalised.
Cons of bridging finance
- It’s expensive: With property prices hitting all-time highs across the country, covering two mortgages at once is a big undertaking. And the interest rates can be up to 1% higher than standard variable rates.
- It’s hard to budget: Bridging finance interest rates are often variable, making it hard to budget.
- It’s risky: There is pressure on you to sell your property on time. And if your current home sells for less than you anticipated, you may need to take on more mortgage debt in your new property.
Our mortgage advisers are here to help
If you are thinking about bridging finance, Loan Market’s friendly mortgage advisers can help you find the right solution for your situation. Get in touch today for a discussion with the experts.