Top 6 Ways Bridging Loans Help Defence Members Buy Before Selling

As a Defence member, you understand the importance of timing and strategic planning. When it comes to buying a home while selling another, bridging loans can be your tactical advantage. Let's explore how bridging finance works specifically for apartment purchases and why it might be the right solution for your financial situation.

Understanding Bridging Loans for Apartment Purchases

A bridging loan is essentially a short-term loan that helps you bridge the gap between buying a home and selling your existing property. For Defence members looking to purchase an apartment, this type of finance provides the borrowing capacity you need without waiting for your current property to settle.

The loan term is usually 6 to 12 months to sell your existing property, though it can extend to 12 months if your new property is being built. This timeframe gives you breathing room to secure your apartment purchase while marketing your current home effectively.

How Bridging Finance Works in Practice

When you apply for a bridging loan, lenders 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 is what you'll owe after selling your current property

The loan to value ratio (LVR) is calculated on the peak debt amount, which affects whether you'll need lenders mortgage insurance (LMI). Many Defence members can access interest rate discounts through their service, which can help offset the typically higher bridging loan rates.

Should You Buy or Sell First?

This age-old question depends on several factors specific to your circumstances:

1. Local property market conditions in both your selling and buying locations
2. Your current borrowing capacity and financial reserves
3. The urgency of your move (posting, family needs, etc.)
4. Stamp duty implications in your state

The Application Process for Defence Members

Applying for a bridging loan involves a more detailed application process than standard home loans. You'll need to provide:

• Bank statements showing your financial position
• Details of both properties (current and intended purchase)
• Evidence of your ability to service peak debt
• Marketing plan for your existing property

Defence Loans can help you access bridging loan options from banks and lenders across Australia, many of whom offer streamlined application processes for Defence members.

Interest Rates and Loan Features

Bridging loan interest rates are typically higher than standard home loan rates, reflecting the short-term nature and additional risk. You'll find both variable interest rate and fixed interest rate options available, though variable loan rates are more common for bridging finance.

Many lenders offer interest capitalisation during the bridging period, meaning you don't make principal and interest repayments until you sell your existing property. Some bridging loan options also include offset account features to help reduce your interest costs.

Calculating Your Bridging Loan Requirements

To determine your bridging loan amount, consider:

• Your existing loan balance
• The apartment purchase price
• Expected sale proceeds from your current property
• Additional costs like stamp duty and legal fees

Calculating bridging loan repayments can be complex, as they depend on whether you choose interest capitalisation or make regular payments during the loan term.

Getting Pre-Approved for Your Apartment Purchase

Loan pre-approval for bridging finance gives you confidence when making offers on apartments. Getting pre-approved also helps you understand your borrowing limits and can speed up the settlement process once you find the right property.

Whether you're looking at an investment loan or planning to move into the apartment as your primary residence, having loan pre-approval puts you in a stronger position with vendors and real estate agents.

Bridging loans aren't suitable for everyone, but for Defence members who need flexibility in their property transactions, they can provide valuable breathing room. The key is understanding your financial situation and working with experienced brokers who can access the right bridging finance products for your needs.

Remady to explore your bridging loan options? Call one of our team or book an appointment at a time that works for you. Our Defence-focused mortgage brokers understand the unique challenges you face and can help you access competitive bridging finance solutions from lenders across Australia.