Are you ready to buy your dream home but worried about selling your existing property first? 

Bridging finance might be the solution you’ve been looking for. 

As the director of Blackbird Mortgage Solutions, I've seen firsthand how bridging finance can transform the home-buying experience. 

What’s bridging finance?

Bridging finance is a short-term loan designed to bridge the gap between purchasing a new property and selling an existing one. 

This means you can buy and move into your new home without renting in between.

Here’s how it works

First, you take out a bridging loan to buy your new home. Second, once you’ve moved in, you prepare your old home for sale. Third, when your old home is sold, you use the proceeds to repay your first mortgage. Your bridging loan then switches to a normal home loan with standard terms.

How bridging loans work

Bridging loans come with different terms and conditions, but they are generally interest-only during the bridging period and are typically limited to 12 months.

Lenders expect you to have equity in your current home and require a deposit for your new home. 

When applying for a bridging loan, you'll need to submit standard documentation and meet typical creditworthiness criteria. 

Lenders will evaluate your ability to manage two sets of debts:

- Peak debt: The mortgage on your old home plus the bridging loan.

- End debt: The mortgage on your new home.

Benefits and considerations

According to CoreLogic, national property prices rose 8.0% in the 2023-24 financial year.

When property prices are rising, delaying your purchase could mean paying significantly more for your next home. A bridging loan allows you to lock in today’s prices, giving you a financial edge. You can secure your new property now and take your time selling your existing home – potentially at a higher price, securing the best possible deal on both ends.

Other pros include:

- Avoid renting: Move directly from your old home to your new one without the hassle and cost of renting in between.

- Flexibility: You have time to renovate or prepare your current home for sale., potentially securing a better price.

- Stress-free transition: No need to align settlement dates perfectly.

However, there are also considerations to keep in mind:

- Debt management: You need to be able to make repayments on both properties during the bridging period. 

- Interest costs: Interest is calculated daily and charged monthly, so the longer it takes to sell your home, the more interest you pay.

- Market risk: Property prices may fluctuate, affecting the sale price of your current home and impacting your ongoing loan.

While bridging finance can be a powerful tool, it's not suitable for everyone. 

You also need to be confident in your ability to sell your old home within the bridging period and manage the associated financial commitments. If you’re unsure, a mortgage broker can help you explore your options and understand the potential risks.

Aaron Connaughton is the director of Blackbird Mortgage Solutions, an Award-Winning Mortgage Brokerage in Bendigo, Victoria.