Compare bridging home loans
Bridging finance is a short term loan to help you buy a new property while you finalise the sale of an old property. Compare bridging loans to work out which options could help you to minimise hassles around settlement dates.
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Some of the best home loans in April 2021
Despite the Reserve Bank of Australia (RBA) having not lifted the national cash rate in over a decade, many mortgage lenders are aggressively competing for business from borrowers. But while many borrowers will go looking for the home loans with the lowest interest rates, it’s important to also consider which home loans offer the fees, features and other benefits that could offer greater value for your financial situation.
Is it possible to refinance with late mortgage payments?
There are many reasons to refinance a home loan. They may include switching to a lower interest rate, consolidating multiple debts into a single loan, leveraging the equity in your home, or accessing flexible payment terms. Refinancing might also be a viable solution to help you manage your mortgage if you fall behind on your repayments. Lenders will decide if they’ll allow your loan to be refinanced under these circumstances on a case-to-case basis. However, there are other steps you could take before refinancing a mortgage in arrears, such as reassessing your overall finances and speaking to your current lender.
What is a bridging loan?
When you need to move into a new property but you haven’t yet sold your old one, a bridging home loan can help. Bridging finance is a type of short term loan specially designed to make sure you don’t miss out on buying a new property because of temporary cash flow problems. It may be organised very quickly to help the process of moving go smoothly, with fewer hassles around lining up settlement dates.
How does bridging finance work?
A bridging loan allows you to access the funds you need to pay for a new home even before you have received money for your current home.
A bridging loan covers the mortgage on your current property as well as the purchase price for your new property, making up your peak debt. Once your old property has sold, its sale price (minus upfront costs such as stamp duty) is used to reduce your peak debt, until you're left with your end debt. Your new loan will work like a typical home loan from this point forward.
Because you effectively have two mortgages at once, bridging loans may only require interest-only loan repayments, or may even capitalise your interest charges into the peak debt until your first property sells. This can help to minimise your costs in the short term, though you may end up paying more in the long term.
A bridging loan may require you to get two valuations - one for your old property and one for your new property - to confirm the property values.
There are two different types of bridging loan:
Open bridging loans
Open bridging loans are available to borrowers who haven’t yet found buyers for their existing properties. They’re usually arranged for a bridging period of 12 months maximum, and there has to be a plan in place for what will happen if the property isn’t sold by then. You’ll have to demonstrate that you are making an effort to find a buyer, and that you have a reasonable amount of equity in the property you’re selling.
Closed bridging loans
Closed bridging loans are available to people who have found buyers for their existing properties but haven’t yet completed all the paperwork. Because there’s less chance of things going wrong at this stage, these loans are usually quite a bit cheaper.
Bridging loans and building
A bridging home loan can also be used if you’re building the dream home you want to move into. The loan amount can free up funds to cover the cost of the build so that you are able to stay in your current property until the new one is ready. This can be considerably cheaper than renting, and help to reduce your overall moving costs.
How does a bridging loan compare to similar products?
Just like other home loans in Australia, a bridging loan may require you to pay for lenders mortgage insurance (LMI). If you hold less than 20 per cent of your peak debt as equity in your current property, you may need to pay for LMI. This is separate to the deposit you'll need for your new property purchase.
One alternative option for securing your new property purchase is to place a deposit bond on it. A deposit bond is a guarantee from an insurance company that you will complete your purchase, even if you won't have the full deposit available until the sale of your current property is finalised. If you don't complete your property purchase in the agreed time frame, the deposit bond will pay out to the seller. Unlike with a bridging loan, you won’t need to pay interest with a deposit bond, but you will need to pay a one-off deposit bond fee, the cost of which will depend on the value of the property you’re trying to buy.
Main features of bridging finance
- Easy to arrange;
- Gives you fast access to funds;
- Bridges the gap between buying and selling;
- Helps if you want to build your new home.
Bridging loan risks and rewards
One potential drawback of a bridging finance is that bridging loans don't typically offer a redraw facility. This means that even if you make extra repayments onto your bridging loan, you won't be able to redraw this money if you need it again.
Closed bridging loans can be relatively low cost and low risk. Open bridging loans carry more risk but as long as you work out your contingency plans carefully with the help of a financial adviser, you should be able to avoid finding yourself in trouble. The more honest you are when arranging your loan, the less likely it is that things will go wrong.
Having a bridging loan in place makes the process of moving from one owned property to another far less disruptive. Properly managed, it can also make it considerably less expensive overall. It's important to check with a mortgage broker or similar financial adviser whether a bridging loan may be the right choice for your financial situation.
Property Personal Finance Writer
A property and personal finance writer, Nick Bendel covers property, loans, credit cards, superannuation, and other bank products. Nick has previously written for The Adviser, Mortgage Business, Lifehacker, Business Insider, Yahoo Finance, and InvestorDaily, and loves getting elbow-deep in the latest ABS, APRA and RBA data.
Today's top home loans
Frequently asked questions
What is bridging finance?
A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.
Usually, these loans have higher interest rates and a shorter repayment duration.
What is a line of credit?
Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.
This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.
What are extra repayments?
Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.
How does a line of credit work?
A line of credit functions in a similar way to a credit card. You have a pre-approved borrowing limit and can draw on as little or as much of that sum as you need it, with interest paid on the outstanding balance.
What is a secured home loan?
When the lender creates a mortgage on your property, they’re offering you a secured home loan. It means you’re offering the property as security to the lender who holds this security against the risk of default or any delays in home loan repayments. Suppose you’re unable to repay the loan. In this case, the lender can take ownership of your property and sell it to recover any outstanding funds you owe. The lender retains this hold over your property until you repay the entire loan amount.
If you take out a secured home loan, you may be charged a lower interest rate. The amount you can borrow depends on the property’s value and the deposit you can pay upfront. Generally, lenders allow you to borrow between 80 per cent and 90 per cent of the property value as the loan. Often, you’ll need Lenders Mortgage Insurance (LMI) if the deposit is less than 20 per cent of the property value. Lenders will also do a property valuation to ensure you’re borrowing enough to cover the purchase.
Remaining loan term
The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.
How to use the ME Bank reverse mortgage calculator?
You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.
Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.
To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.
Why does Westpac charge an early termination fee for home loans?
The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee.
The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.
Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.
When do mortgage payments start after settlement?
Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.
Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.
Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.
How is interest charged on a reverse mortgage from IMB Bank?
An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.
No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.
The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.
When does Commonwealth Bank charge an early exit fee?
When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.
The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:
- If you switch your loan from fixed interest to variable rate
- When you apply for a top-up home loan
- If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
- When you prepay the entire outstanding loan balance before the end of the fixed interest duration.
The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay.
How do I apply for a home improvement loan?
When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying.
Besides taking out a home improvement loan, you could also:
- Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement. Speak with your lender or a mortgage broker about accessing your equity.
- Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
- Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
- Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.
Can I get a NAB first home loan?
The First Home Loan Deposit Scheme of NAB helps first home buyers purchase a property sooner by reducing the upfront costs required. This scheme is offered based on a Government-backed initiative, with10,000 available places announced in October 2020.
Suppose your application for the NAB first home buyer loan is successful. In that case, you’ll only need to pay a low deposit, between 5 and 20 per cent of the property value and won’t be asked to pay lender's mortgage insurance (LMI). You’ll also receive a limited guarantee from the Australian government to purchase the property.
If you’re applying for the NAB first home buyer home loan as an individual, you need to have earned less than $125,000 in the last financial year. Couples applying for the NAB first home loan need to have earned less than $200,000 to be eligible. To be considered a couple, you need to be married or in a de facto relationship. A parent and child, siblings or friends are not considered a couple when applying for a NAB first home loan.
The NAB First Home Loan Deposit Scheme is currently offered only to purchase a brand new property, rather than an established property.
How much deposit do I need for a home loan from ANZ?
Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:
- A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
- The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
- If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).
Can I take a personal loan after a home loan?
Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:
- Higher-income to show repayment capability for both the loans
- Clear credit history with no delays in bill payments or defaults on debts
- Zero or minimal current outstanding debt
- Some amount of savings
- Proven rent history will be positively perceived by the lenders
A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.
As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.
How much deposit do I need for a home loan from NAB?
The right deposit size to get a home loan with an Australian lender will depend on the lender’s eligibility criteria and the value of your property.
Generally, lenders look favourably on applicants who save up a 20 per cent deposit for their property This also means applicants do not have to pay Lenders Mortgage Insurance (LMI). However, you may still be able to obtain a mortgage with a 10 - 15 per cent deposit.
Keep in mind that NAB is one of the participating lenders for the First Home Loan Deposit Scheme, which allows eligible borrowers to buy a property with as low as a 5 per cent deposit without paying the LMI. The Federal Government guarantees up to 15 per cent of the deposit to help first-timers to become homeowners.
Is a home equity loan secured or unsecured?
Home equity is the difference between its current market price and the outstanding balance on the mortgage loan. The amount you can borrow against the equity in your property is known as a home equity loan.
A home equity loan is secured against your property. It means the lender can recoup your property if you default on the repayments. A secured home equity loan is available at a competitive rate of interest and may be repaid over the long-term. Although a home equity loan is secured, lenders will assess your income, expenses, and other liabilities before approving your application. You’ll also want a good credit score to qualify for a home equity loan.
How do you determine which home loan rates/products I’m shown?
When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.
We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.
What is a loan-to-value ratio (LVR)?
A loan-to-value ratio (otherwise known as a Loan to Valuation Ratio or LVR), is a calculation lenders make to work out the value of your loan versus the value of your property, expressed as a percentage. Lenders use this calculation to help assess your suitability for a home loan, and whether you need to pay lender’s mortgage insurance (LMI). As a general rule, most banks will require you to pay LMI if your loan-to-value ratio is 80 per cent or more. LVR is worked out by dividing the loan amount by the value of the property. If you are looking for a quick ball-park estimate of LVR, the size of your deposit is a good indicator as it is directly proportionate to your LVR. For instance, a loan with an LVR of 80 per cent requires a deposit of 20 per cent, while a 90 per cent LVR requires 10 per cent down payment.
LOAN AMOUNT / PROPERTY VALUE = LVR%
While this all sounds simple enough, it is worth doing a more accurate calculation of LVR before you commit to buying a place as there are some traps to be aware of. Firstly, the ‘loan amount’ is the price you paid for the property plus additional costs such as stamp duty and legal fees, minus your deposit amount. Secondly, the ‘property value’ is determined by your lender’s valuation of the property, not the price you paid for it, and sometimes these can differ so where possible, try and get your bank to evaluate the property before you put in an offer.
What is a low-deposit home loan?
A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.
For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.
As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.