How Bridging Loans Work: Complete 2024 Guide
Bridging loans can be a suitable option for individuals and businesses looking to manage the transition between two properties. The real estate market often necessitates bridging loans due to several fluctuations in the sector.
These loans “bridge” the financial gap that occurs when you buy a new property before selling an existing one. It is especially valuable in the fast-paced Australian property market, where timing is important to get the right property at the right price.
Bridging loans are becoming more and more popular. This is especially true for metropolitan areas like Melbourne, where property transactions can be quick and competitive. Some lenders may offer bridging loans that help borrowers manage property transitions and reduce financial strain.
About Maxiron Capital: Flexible Lending Experts
Established in 2002, Maxiron Capital has been a leader in the alternative lending market in Australia. We have built a reputation for providing innovative, flexible, and low-rate financial solutions for a wide range of clients. We specialise in tailored loans for clients who can’t get finance through traditional banking channels.
Maxiron Capital’s excellence is reflected in our range of products including first, second, and third mortgages, equity release, and of course, bridging loans. This makes us the perfect partner for investors and businesses with complex financial needs.
We aim to provide fast funding and personalised service to help clients access finance when needed. We have the experience to help you achieve your goals. Our tailored approach means each client gets a solution designed for their situation.
How Do Bridging Loans Work?
A bridging loan can be used as a short-term solution to manage the transition between two property transactions.
These loans are ideal for those who need to buy a new property before selling their existing one. It provides the funds to “bridge” the gap between two transactions. Understanding how bridging loans work is important to navigate the transitional period effectively.
This type of loan is especially useful in a competitive property market where the opportunity to buy your desired property may arise before you can sell your existing one.
The mechanics of a bridging loan are based on the concept of Peak Debt. Peak Debt is the total amount borrowed during the bridging period. It includes the following:
- Outstanding mortgage on your current property
- Purchase price of the new property
- Other additional costs such as stamp duty, legal fees, and lender fees
The Peak Debt remains in place until your existing property is sold. Managing interest costs during this period is essential so you can meet your financial obligations.
Interestcan be capitalised during the bridging period. This means that it’s added to the loan. This allows you to delay repayments until your existing property is sold. Once your current property is sold, the loan converts to End Debt and the balance is structured as a standard mortgage.
Bridging loans can be structured flexibly by some lenders, allowing borrowers to tailor the loan terms to their individual needs. Our loan options give you the chance to make informed decisions and avoid unnecessary stress.
Types of Bridging Loans
Open Bridging Loans
Open bridging loans are flexible with no fixed sale date for the existing property. This means that you have more time to sell but you will need to prove that your property is actively on the market. It’s perfect for those who are unsure of their sale timeline.
Closed Bridging Loans
Closed bridging loans, which require an agreed sale date, may carry less risk for lenders and therefore can offer more favorable terms compared to open bridging loans. It’s best for those with a sale date, leading to a more structured repayment plan.
Bridging Loans Benefits
Bridging loans offers many benefits for clients. They give you the flexibility, speed, and financial security to navigate complex property transactions with ease.
Timing Flexibility
One of the biggest benefits of a bridging loan is the timing flexibility. Traditional property transactions require you to sell your existing property before you can buy a new one. This can limit your options and force you to make hasty decisions.
With a bridging loan, you can buy the property when the opportunity arises rather than being dictated by the sale of your existing property.
A bridging loan gives you the financial flexibility to act when the time is right. This can be critical in a competitive market where delays can mean missed opportunities.
Fast Access to Funds
Access to funds can be everything in the fast-paced world of property transactions. Bridging loans are designed to provide fast funding so you can act on time-sensitive opportunities without the usual delays of traditional finance. Most lenders have quick application process and approval times which means that you may get the finance you need in days not weeks or months.
No Repayments Until Sold
Another possible benefit of bridging loans is the ability to capitalise interest so you can delay repayments until your existing property is sold. This can give peace of mind to businesses that need to maintain cash flow during transition or growth.
By deferring repayments, you can focus on running your business or preparing your property for sale without immediate financial commitments.
This flexibility is particularly useful for businesses involved in property development or real estate investments where cash flow can be unpredictable. We can help you align your repayment schedule with your cash flow so your financial commitments are manageable.
Use Equity from Existing Property
Bridging loans may allow businesses and individuals to use the equity in their existing assets such as property to fund new investments or pursue expansion. This can give you a competitive advantage without the need to liquidate assets.
Property Transactions
Bridging loans can help businesses maintain their operations and potentially reduce the risks associated with market timing. They help you keep the momentum in your business by providing the finance to buy new properties quickly.
A bridging loan can enable borrowers to proceed with developing new commercial spaces or expanding their real estate portfolios with confidence in securing timely financing.
Maxiron Capital’s Flexi Bridging Loan
The Flexi Bridging Loan offers features that may include competitive rates, quick approval times, and tailored service depending on the circumstance.
Key Features of the Flexi Bridging Loan
Our Flexi Bridging Loan allows you to borrow between $250,000 and $12,000,000 with loan terms of up to 6 months. We also accept an LVR of up to 90%.
Other benefits include:
- No income requirement
- No credit score requirement
- No citizen/PR requirement
- No cap on the age
- For commercial purchase
- All property types considered
The Flexi Bridging Loan can be used for property development, business expansion, and more. Its flexible loan terms make it a great option for individuals and businesses looking for a customised financial solution.
We know every client is unique, and our loan is designed to give you substantial support to help you navigate complex financial situations with ease.
Eligibility and Conditions
Before you apply for a Bridging Loan, here are some eligibility requirements and conditions to keep in mind.
Equity Requirements
The equity in your property can influence the loan amount and terms offered by lenders. A strong equity position will get you a higher loan amount and better terms.
Serviceability
You must be able to service both the existing mortgage and the bridging loan. This is typically assessed through a thorough review of your income, expenses, and existing debt. Our team will work closely with you to ensure your financial situation is carefully reviewed so you can manage the loan repayments without stress.
Loan Terms
Generally, standard bridging loan terms are up to 6 months with extensions or additional conditions depending on your situation. We know every client is different, and our loan terms are flexible to suit your needs, whether you need a short-term or long-term solution.
Risk Management
You should consider the risks of bridging loans, such as having to repay the loan within a certain timeframe. Some lenders may offer risk management support to help borrowers address potential challenges and develop a sound financial strategy.
How to Apply for a Bridging Loan With Maxiron Capital
Applying for a bridging loan with us is easy and stress-free. We aim to offer a straightforward settlement process to simplify borrowing.
STEP 1 – Get A Quote
The application process starts with an initial consultation to understand your needs and financial situation. Our team of experienced professionals will guide you through the application process, collect all necessary documents and get your application processed.
STEP 2 – Get Approval
Once approved, we move fast to settle the loan and get the funds to you so you can proceed with your property transaction. Review and sign the approval letter.
STEP 3 – Deal Settled
We handle the settlement process and ensure the funds are available when you need them.
We’re with you from start to finish. Our goal is to make the lending process easy for you so you can focus on what’s important.
