Property auctions move fast. When you find the perfect home in Waurn Ponds or greater Geelong, you need to act quickly. But what happens when your current home hasn't sold yet? This is where bridging finance becomes your solution.
Understanding Bridging Loans for Auction Properties
A bridging loan is a short-term loan that helps bridge the gap between buying a new property and selling your existing one. For auction purchases, these loans are particularly valuable because auctions require unconditional offers and quick settlement.
When you secure bridging finance, you can:
• Purchase at auction without waiting for your current home to sell
• Move quickly when the right property appears
• Avoid missing out on your dream home
• Take advantage of local property market opportunities
Bridging loan amounts typically allow you to borrow against both your existing property's equity and your borrowing capacity for the new purchase.
How Bridging Finance Works for Auction Purchases
The structure involves two key debt positions:
Peak Debt: This is your maximum borrowing amount, including the contract purchase price of the new home plus your existing mortgage balance. This occurs immediately after purchasing the auction property.
End Debt: This is your remaining loan balance after selling your existing property and applying the proceeds to reduce your total debt.
Most lenders calculate bridging loan repayments based on the end debt position, making monthly payments more manageable during the bridging period.
Key Features of Bridging Loans
Loan Terms
The loan term is usually 6 to 12 months to sell your existing property. If your new property is being built, terms can extend to 12 months or longer.
Interest Rates
Bridging loan rates are typically higher than standard home loan rates. You can choose between:
• Variable interest rate options
• Fixed interest rate loans for certainty
Many borrowers use interest capitalisation, where loan interest is added to the loan balance rather than paid monthly.
Loan to Value Ratio (LVR)
Lenders assess your combined LVR across both properties. Lower LVR positions may qualify for interest rate discounts and help avoid lenders mortgage insurance (LMI).
The Application Process for Auction Finance
Applying for a bridging loan requires preparation:
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Pre-approval: Get pre-approved before attending auctions. Loan pre-approval gives you confidence to bid and demonstrates serious intent.
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Documentation: Prepare bank statements, income verification, and property valuations. A mortgage broker can help streamline the application process.
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Property Assessment: Lenders evaluate both your existing property and the proposed auction purchase.
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Financial Situation Review: Lenders assess your ability to service both loans and your strategy for selling the existing property.
Should You Buy or Sell First?
This decision depends on your financial situation and market conditions. Buying first with bridging finance offers advantages:
• Certainty of securing your next home
• Time to find the right property
• Ability to purchase at auction
• Reduced pressure when selling your existing home
However, consider the costs including higher interest rates, potential stamp duty on both properties, and the pressure to sell within the loan term.
Bridging Loan Options Available
Mortgage brokers can access bridging loan options from banks and lenders across Australia, providing:
• Competitive rate comparisons
• Different loan structures
• Varying LVR requirements
• Flexible settlement terms
Some lenders offer offset account facilities, allowing you to reduce interest charges on your bridging finance.
Making Bridging Finance Work for Investment Properties
If you're purchasing an investment loan through auction, bridging finance can still apply. The same principles work whether buying a home or investment property, though lending criteria may vary.
Calculating Your Borrowing Capacity
Your borrowing capacity for bridging finance depends on:
• Combined property values
• Existing mortgage balances
• Income and expenses
• Intended sale price of current property
• Deposit available for the auction property
A mortgage broker can calculate these figures and present your options clearly.
Why Use a Mortgage Broker for Bridging Finance
Mortgage brokers provide access to multiple lenders and can:
• Compare bridging loan rates across different banks
• Structure loans to suit your specific situation
• Handle complex application processes
• Negotiate with lenders on your behalf
• Coordinate timing for auction purchases
At Mt. Pleasant Financial, we understand the Waurn Ponds and greater Geelong property markets and can help structure bridging finance solutions that work for your circumstances.
Whether you're upgrading your family home or expanding your investment portfolio, bridging loans provide the financial flexibility to act quickly at auction while giving you time to sell your existing property on your terms.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can help you secure your next property purchase.