As a current or former Australian Defence Force member, you understand the value of strategic planning. When it comes to building your property portfolio, timing can make all the difference. If you've found the perfect investment property but haven't sold your existing home yet, a bridging loan might be the financial tool you need.
What is Bridging Finance for Investment Properties?
Bridging finance acts as a short-term financial solution that helps you purchase an investment property before selling your current home. These loans typically bridge the gap between buying and selling, allowing you to secure that ideal investment opportunity without waiting months for your existing property to sell.
The loan term usually runs for 6 to 12 months to sell your existing property, though this can extend to 12 months if your new property is being built. This timeframe gives you breathing room to sell your current home without the pressure of missing out on your chosen investment.
Understanding Peak Debt and End Debt
When applying for a bridging loan, lenders will calculate two key figures:
• Peak Debt: This includes your existing home loan balance plus the contract purchase price of the new home
• End Debt: This represents your total debt after selling your existing property
Your borrowing capacity depends on your ability to service both the peak debt initially and the end debt once you've sold your current property.
Key Features of Bridging Loan Options
Bridging loans come with specific characteristics that differ from standard home loans:
Interest Rate Structure
Most bridging loans offer variable interest rates, though some lenders provide fixed interest rate options. The loan interest rate is typically higher than standard home loan rates, reflecting the short-term nature and increased risk for lenders.
Interest Capitalisation
Many borrowers choose interest capitalisation, where monthly interest payments are added to the loan balance rather than paid upfront. This reduces your immediate cash flow requirements during the bridging period.
Loan to Value Ratio (LVR)
Lenders typically allow higher LVR ratios for bridging finance, sometimes up to 95% when combined across both properties. However, you may need to pay lenders mortgage insurance (LMI) if your combined LVR exceeds 80%.
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
Should You Buy or Sell First?
This common dilemma faces many property investors. Here's how bridging finance changes the equation:
Advantages of Buying First with Bridging Finance:
• Secure your investment property without conditional offers
• Avoid temporary accommodation costs
• Take advantage of current local property market conditions
• Maintain flexibility in your selling timeline
Considerations:
• Higher interest costs during the bridging period
• Additional stamp duty and legal costs upfront
• Need to qualify for the peak debt amount
The Application Process for Defence Members
As specialists in Defence finance, we understand your unique financial situation. The loan application process involves several key steps:
- Financial Assessment: Review your income, existing debts, and overall borrowing capacity
- Property Valuation: Both your existing home and intended investment property
- Documentation: Recent bank statements, income verification, and property contracts
- Loan Pre-approval: Get pre-approved to strengthen your position when making offers
Many lenders now offer a streamlined application process for bridging finance, recognising the time-sensitive nature of property purchases.
Calculating Bridging Loan Repayments
Understanding your repayment obligations helps with budgeting during the bridging period. Your repayments depend on:
• The bridging loan amount
• Whether you choose variable loan rates or fixed interest rate loans
• Your decision on interest capitalisation
• Access to features like an offset account
Some borrowers prefer to make interest-only payments on their investment loan portion while capitalising interest on the bridging component.
Working with Specialist Defence Lenders
Defence members often qualify for interest rate discounts and favourable loan terms due to job security and reliable income. We can access bridging loan options from banks and lenders across Australia, ensuring you receive competitive rates suited to your circumstances.
Our experience with Defence financial situations means we understand deployment schedules, posting cycles, and how these factors impact your property investment strategy.
Planning Your Investment Strategy
Successful property investment requires careful consideration of your long-term financial goals. Bridging finance provides flexibility, but it works alongside your broader investment strategy.
Consider how your new investment property fits within your portfolio, expected rental yields, and your capacity to service multiple loans if your existing property takes longer to sell than anticipated.
Remember, bridging loans are designed as short-term solutions. Having a realistic timeline for selling your existing property and a backup plan if sale delays occur will help ensure your investment journey stays on course.
Ready to explore bridging finance options for your next investment property? Our team understands the unique needs of Defence members and can guide you through the entire process. Call one of our team or book an appointment at a time that works for you.
