When you're in the Australian Defence Force, timing property transactions can be particularly challenging. Postings, deployments, and military life don't always align with the perfect moment to sell your current home before buying a new one. This is where bridging loans become invaluable for Defence Force members.
Understanding Bridging Loans for Defence Personnel
A bridging loan is a short-term financial solution that helps you purchase a new property before selling your existing one. These loans literally bridge the gap between buying and selling, allowing you to secure your new home without the pressure of timing both transactions perfectly.
For Defence Force members, bridging loans offer the flexibility to:
• Secure a property in your new posting location
• Avoid temporary accommodation costs
• Take advantage of local property market opportunities
• Manage your financial situation during transitions
Should You Buy or Sell First?
This is one of the most common dilemmas facing Defence families. Each approach has its merits:
Buying First (with a bridging loan):
• Secure your new home without time pressure
• Avoid rental costs or temporary accommodation
• Move directly from old home to new home
• Take time to achieve optimal sale price
Selling First:
• Know your exact financial position
• Avoid interest costs on two properties
• Potentially miss out on desired properties
• May require temporary accommodation
For many Defence families, buying first with bridging finance proves more practical, especially when postings have specific timelines.
How Bridging Loans Work
Bridging loans involve two key debt positions:
Peak Debt: This is your maximum borrowing when you own both properties. It includes the contract purchase price of the new home plus your existing mortgage balance.
End Debt: This is your remaining debt after selling your original property, which typically converts to a standard home loan or investment loan.
Most lenders offer loan terms of 6 to 12 months to sell your existing property, or up to 12 months if your new property is being built.
Interest Rates and Loan Options
Bridging loan rates are typically higher than standard home loans, but mortgage brokers can access bridging loan options from banks and lenders across Australia to find competitive rates. You'll encounter:
• Variable interest rates: Rates that fluctuate with market conditions
• Fixed interest rate loans: Locked rates for the loan term
• Interest capitalisation: Option to add interest to the loan balance
• Offset account facilities: To reduce interest charges
Many lenders offer interest rate discounts for Defence Force members, which can significantly impact your bridging loan repayments.
Calculating Your Borrowing Capacity
Lenders assess your borrowing capacity based on several factors:
- Loan to Value Ratio (LVR): Typically capped at 80% to avoid lenders mortgage insurance (LMI)
- Your income and employment stability
- Existing debts and financial commitments
- The bridging loan amount required
- Your ability to service both loans during the bridging period
Defence Force members often benefit from stable employment history, which lenders view favourably when calculating bridging loan repayments.
The Application Process
Applying for a bridging loan involves a streamlined application process:
Documentation Required:
• Loan application forms
• Bank statements (typically 3-6 months)
• Employment verification
• Property valuations
• Sale and purchase contracts
• Evidence of marketing your existing property
Timeline Considerations:
• Get pre-approved before house hunting
• Loan pre-approval gives you confidence when making offers
• Most applications process within 2-3 weeks
• Factor in settlement timing for both properties
Additional Costs to Consider
Beyond the loan interest rate, budget for:
• Stamp duty on your new property purchase
• Legal fees for both transactions
• Property inspections and valuations
• Real estate agent fees
• Moving and relocation costs
Making Bridging Loans Work for Your Situation
Successful bridging loan strategies for Defence families include:
Property Marketing: Begin marketing your existing property early, ideally before or immediately after purchasing your new home.
Realistic Pricing: Price your property competitively to achieve a sale within the loan term.
Financial Buffers: Ensure you can comfortably service both loan repayments during the bridging period.
Professional Support: Work with mortgage brokers experienced in Defence Force relocations and bridging finance.
When Bridging Loans Make Sense
Bridging loans are particularly suitable when:
• You have substantial equity in your current property
• Your existing property is in a saleable condition
• You need to secure accommodation quickly due to posting timelines
• The local property market supports reasonable sale expectations
• You can comfortably manage the higher interest costs short-term
Defence Force members often find bridging loans provide the flexibility needed to manage property transactions around military commitments. While the interest costs are higher than standard home loans, the convenience and certainty often justify the additional expense.
Working with experienced mortgage brokers who understand Defence Force requirements ensures you access suitable bridging loan options and receive appropriate guidance throughout the process. They can help you compare variable loan rates, assess different lenders, and structure the finance to suit your specific circumstances.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can support your next property move.
