Short-term bridging loans: everything you need to know

If you’re wondering whether a short-term bridging loan might be a good fit for your requirements, then this article is for you. Let’s take a closer look at quick bridging loans, what they are and their benefits.

What are short-term bridging loans?

As the same suggests, a bridging loan is a type of loan that’s designed to “bridge a gap.” In this case, a short-term bridging loan is usually a one-to-six-month loan that’s taken out when you’re selling your property. It gives you the opportunity to purchase a new property while waiting for your current property to either sell or settle. It’s a loan that is taken out on top of your existing home loan.

So, in other words, a short-term bridging loan creates a financial bridge between the sale of one property and the purchasing of a new property.

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What can a short-term bridging loan be used for?

While a bridging loan is most commonly used for bridging that gap between selling your property and purchasing a new one, there are other less known, but equally relevant uses for a short-term bridging loan. Let’s look at some.

 Possibly your home needs some repairs or updating in order to get it sold for a fair price, yet you don’t have the cash on hand to perform the repairs or updates. In this scenario, a short-term bridging loan enables you to gain access to the funds to have the repairs and improvements carried out. The upside: a short-term bridging loan has allowed thousands of Australians, and homeowners internationally, to sell their home for a great price.

 Similarly, a short-term bridging loan can help finance to cover the cost of moving house after your place has sold, as well as any legal fees incurred during the process.

Eligibility criteria for a short-term bridging loan

The criteria to be eligible to apply for a short-term bridging loan varies from lender to lender. Though one thing’s for certain: you must already have an existing home loan to apply for a bridging loan. If you don’t, then other forms of finance will have to be looked into.

 For the specific criteria that a lender requires, it’s best to check with the lender and ask, or peruse their website for exact information on what’s required of you to apply.

How much money can you borrow for a short-term bridging loan?

The amount of money you’re able to borrow for a short-term bridging loan will depend on a few factors.

The main area for consideration is how much equity you have built up in your current mortgage and how much money you still owe on that mortgage? It will also depend on what you want the money for exactly, as well as what your ‘serviceability’ is (i.e. whether you have the means to pay off the loan during the loan term), and ‘exit strategy’ (i.e. how you will finish paying the loan). 

Once again, lenders will vary on how much you can borrow, but as a general guide, it’s usually up to around $500,000.

What are the usual short-term bridging loan terms?

The loan terms for a short-term bridging loan are usually around two to 24 months. Again, be sure to check this with the lender.

Can bridging loans be applied for online?

These days most Australian lenders – particularly private lenders, allow you to apply for bridging loans online. If you have electronic copies of the supporting documentation required, you can upload these and submit them with your online application. 

Another advantage of being able to apply online is it can speed up the processing and approval phase, meaning you’ll get the money you need sooner rather than later.

The takeaway

If you’re thinking of selling your property and need to bridge the gap between the sale and the purchase of another property, a short-term bridging loan is worth considering.