Should You Buy or Sell First? The Public Servant's Dilemma
As a public servant, you've probably found yourself in this situation: you've spotted the perfect apartment, but your current home hasn't sold yet. The question that keeps you awake at night is whether you should buy or sell first. This timing challenge affects many public servants across Australia, and there's a financial solution designed specifically to bridge the gap between these two transactions.
A Bridging Loan can help you secure that apartment purchase while giving you time to sell your existing property. Let's explore how this short-term financing option works and what you need to know as a public servant.
What Is a Bridging Loan and How Does It Work?
A Bridging Loan is essentially a short-term loan that allows you to purchase a new property before selling your existing one. The loan term usually ranges from 6 to 12 months to sell your existing property, or up to 12 months if your new property is being built.
Here's how the process typically works:
• You secure the Bridging Loan to purchase your new apartment
• You continue paying your existing home loan plus the bridging finance
• Once your current property sells, you use the proceeds to pay off the bridging facility
• The remaining loan converts to a standard home loan or investment loan
The key advantage? You won't miss out on that perfect apartment while waiting for your current property to sell in the local property market.
Understanding Peak Debt and End Debt
When applying for a Bridging Loan, lenders will assess two important figures:
Peak Debt: This is the maximum amount you'll owe when you have both properties. It includes your existing home loan balance plus the contract purchase price of the new home, minus any deposit you're contributing.
End Debt: This is what you'll owe after selling your current property. Lenders use this to determine your long-term borrowing capacity and ensure you can service the ongoing loan.
Your mortgage broker will help calculate these figures and assess whether a Bridging Loan suits your financial situation.
Bridging Loan Rates and Interest Capitalisation
Bridging Loan rates are typically higher than standard home loan rates, reflecting the short-term nature and additional risk. You'll encounter both variable interest rate and fixed interest rate options, though variable loan rates are more common for bridging finance.
Many lenders offer Interest Capitalisation, meaning you don't make monthly repayments during the bridging period. Instead, the interest gets added to your loan balance. This can help manage cash flow while you're carrying two properties.
Some lenders may also offer interest rate discounts for public servants, so it's worth exploring all available Bridging Loan options through an experienced mortgage broker.
The Application Process for Public Servants
When applying for a Bridging Loan, you'll need to provide:
• Recent bank statements
• Proof of income (payslips and group certificates)
• Details of both properties (current and intended purchase)
• Evidence of your current property being marketed for sale
• A realistic sale price estimate for your existing home
Public servants often benefit from a more streamlined application process due to employment stability. Many lenders view public service positions favourably, which can help with loan approval.
The loan application process typically involves getting pre-approved based on your borrowing capacity, then finalising the loan once you have a signed contract for your new apartment.
Loan to Value Ratio and Lenders Mortgage Insurance
Lenders will assess your Loan to Value Ratio (LVR) across both properties. If your combined LVR exceeds 80%, you may need to pay Lenders Mortgage Insurance (LMI). However, some lenders offer LMI waivers or discounts for public servants, which can result in significant savings.
Your mortgage broker can access Bridging Loan options from banks and lenders across Australia, helping you find the most suitable terms for your situation.
Additional Costs to Consider
When buying a home while selling another, factor in these costs:
• Stamp duty on the new apartment
• Legal fees for both transactions
• Real estate agent commissions
• Building and pest inspections
• Ongoing interest payments on both loans
Some lenders offer offset account facilities with bridging loans, which can help reduce interest costs if you have savings available.
Making the Right Choice for Your Situation
Bridging loans aren't suitable for everyone. Consider this option if you:
• Have found your ideal apartment and don't want to miss out
• Have sufficient equity in your current property
• Can service both loans if needed
• Have a realistic timeline for selling your existing home
• Want to avoid the stress of temporary accommodation
Working with a specialist mortgage broker who understands the public service sector can make all the difference in securing appropriate bridging finance.
Don't let timing prevent you from securing that perfect apartment. Call one of our team or book an appointment at a time that works for you to discuss your Bridging Loan options today.
