A bridging loan, also known as a bridge loan or connection loan, is a temporary loan that allows you to buy, build, or renovate a property while you are waiting for the proceeds from the sale of another property. This type of loan is ideal for situations where the necessary funds are not yet available, but costs are already being incurred, such as purchasing a new home or acquiring materials for a renovation.

When Do You Need a Bridging Loan?

Many people find themselves in a situation where they want to purchase a new home or renovate, but the funds for that are not available until they have sold their current property. This can be a stressful situation, as the costs of the new property or renovation need to be paid immediately, but the proceeds from the sale are not yet ready. In such cases, a bridging loan provides a solution.

By applying for a bridging loan from your bank or lender, you can receive the necessary financing to buy your new property or complete your renovation while you wait for the sale of your old property. Once the sale has been finalized, you can pay off the loan in full.

How Does a Bridging Loan Work?

A bridging loan is granted based on specific conditions. The key conditions are:

• Short-term loan: The loan is typically provided for a short period, often no longer than 24 months.
• Secured by a mortgage: The bridging loan is often linked to an existing or future long-term mortgage.
• Two sequential events: The loan is provided based on the expectation of two key events: the sale of your current property and the purchase of your new property.

The interest on a bridging loan is typically paid monthly, while the principal of the loan is repaid only once the proceeds from the sale of your old property are received. The interest rate depends on the agreement with your bank or lender.

What Are the Costs of a Bridging Loan?

The costs associated with a bridging loan can vary, but there are several common charges:

• Application fees: When applying for the loan, application fees may be charged, depending on the lender.
• Property valuation: A property valuation is often required to determine whether the bridging loan is feasible. This helps the lender assess whether you have enough equity to repay the loan.
• Mortgage mandate: In some cases, the lender may place a mortgage mandate on the property being sold as an additional security for the loan, which could incur notary fees.

What Are the Benefits of a Bridging Loan?

• Financial breathing room: The main benefit of a bridging loan is that it allows you to finance the purchase or renovation of a new property without having to wait for the sale of your old property.
• Flexibility: Bridging loans are generally quick to apply for and can be approved quickly, as long as your application is approved.
• One repayment: The borrowed amount is repaid in full once the proceeds from the sale of your old property come in.

Is a Bridging Loan Right for You?

A bridging loan can be a valuable solution when you find yourself in a temporary financial gap. However, it’s important to carefully consider whether you will be able to finalize the sale of your property soon, so you can repay the loan on time. Consult with your bank or a lender to get personalized advice for your specific situation.

With the right bridging loan, you can bridge the gap and move forward with your plans to buy a new home or complete a renovation without unnecessary delays.