What is a Transitional/Relocation/Bridging Loan?

A bridging loan, also known as a transitional or relocation loan, is a short-term loan designed to help you buy or build a new home while you are waiting for your current home to sell. Generally, these loans have 12-month terms.

 

Benefits of bridging loans

• When you find a home you love, you can buy it right away without having to wait until you can secure a home loan.
• You don’t have to sell your property right away. You can wait until you are offered the best price.
• Until you sell your home or the loan term is up, you don’t have to make loan repayments on the bridging loan. You only have to make repayments on your existing mortgage.
• You can choose to pay the interest on your bridging loan if you want to reduce your interest bill, but you don’t have to.
• If you sell your current home before the end of the loan term, you do not have to pay break costs or discharge fees.
• With a bridging loan, you don’t have to pay double the moving costs or rent. 

 

Drawbacks of bridging loans

• While you don’t have to make repayments during the loan period, interest will still compound monthly. The longer your home is on the market, the more interest your loan will accrue.
• Valuations will need to be performed on both properties, which costs you money. 
• If you don’t sell your property within the 12-months, you will have to pay a higher interest rate. In addition, you will have to start making repayments on your bridging loan plus your mortgage.

 

If you are relocating for a job or need to purchase a home quickly, bridging loans may be the best option for you. However, you should consult with a mortgage broker to determine if it is the right financial decision for you. Mortgage House knows the ins and outs of the home buying process. We can determine if a bridging loan is right for you.