Building your dream home while managing your current mortgage can feel overwhelming, especially when you're juggling cash flow during the construction phase. As an NDIA employee, you have unique advantages when it comes to accessing Bridging Loan options from banks and lenders across Australia.
Bridging Finance offers a practical solution for maintaining your financial stability while your new property is being built. Let's explore how this financing option can support your home building journey.
Understanding Bridging Loans for Construction
A bridging loan serves as short-term financing that helps bridge the gap between buying your new home and selling your existing property. For construction projects, the loan term is usually 6 to 12 months to sell existing property, but extends to 12 months if new property is being built.
This extended timeframe recognises the reality of construction timelines and gives you breathing room to complete your build without the pressure of immediate sale.
Cash Flow Benefits During Construction
During construction, you'll face several financial pressures:
• Progress payments to your builder
• Ongoing mortgage repayments on your current home
• Living expenses while managing two properties
• Potential stamp duty obligations
Bridging Finance addresses these challenges by providing access to funds based on the contract purchase price of the new home, allowing you to maintain cash flow throughout the building process.
How Peak Debt and End Debt Work
When applying for a Bridging Loan, lenders calculate two key figures:
Peak Debt: This represents the maximum amount you'll owe when both your existing mortgage and bridging loan are active. It includes your current home loan balance plus the Bridging Loan amount.
End Debt: This is your remaining debt after selling your current property and paying down the bridging facility.
Understanding these calculations helps you assess your borrowing capacity and plan your financial situation effectively.
Ready to get started?
Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
Interest Rate Considerations
Bridging Loan Rates typically operate on a variable interest rate structure, though some lenders offer fixed interest rate loan options. The loan interest rate is generally higher than standard home loan rates, reflecting the short-term nature and additional risk.
Many lenders offer Interest Capitalisation, meaning you can add the interest charges to the loan balance rather than making monthly repayments. This feature significantly helps cash flow during construction when money might be tight.
LVR and LMI Requirements
The loan to value ratio (LVR) for bridging loans differs from standard home loans. Lenders typically allow higher LVRs, sometimes up to 95% of the combined property values. However, lenders mortgage insurance (LMI) may apply depending on your specific circumstances and the total exposure.
As a public service employee, you may qualify for interest rate discounts or reduced LMI premiums with certain lenders who value the job security that comes with NDIA employment.
The Application Process
When applying for a Bridging Loan, you'll need to provide:
- Standard loan application documentation
- Construction contract and timeline
- Bank statements showing your financial position
- Valuation of your existing property
- Plans and specifications for your new build
Many lenders now offer a streamlined application process for bridging finance, recognising the time-sensitive nature of these transactions.
Should You Buy or Sell First?
This age-old question becomes less relevant with bridging finance. You can proceed with your construction project while maintaining your current living arrangements. This approach offers several advantages:
• No rushed sale of your existing home
• Time to achieve optimal value in the local property market
• Continued housing security for your family
• Flexibility to coordinate settlement timings
Getting Pre-Approved
Loan pre-approval for bridging finance provides confidence when contracting with builders and helps you understand your true borrowing capacity. The process involves assessment of both properties and your ability to service the combined debt load.
Some lenders also allow you to link an offset account to help manage interest costs during the bridging period.
Planning Your Repayment Strategy
Calculating Bridging loan repayments involves considering whether you'll make interest payments or capitalise them. Your choice depends on your cash flow situation and risk tolerance.
Most borrowers opt for interest capitalisation during construction, then switch to payments once their existing property sells or rental income from an investment loan begins.
Building your new home doesn't have to strain your finances. With proper planning and the right bridging loan structure, you can maintain financial stability throughout the construction process. As an NDIA employee, you're well-positioned to access favourable bridging finance terms that support your home building aspirations.
Call one of our team or book an appointment at a time that works for you to discuss how bridging finance can support your construction project.
