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What is a Bridging Loan and When Should You Use It?

What is a Bridging Loan and When Should You Use It?

Mar 9, 2023 | Bridging Loan, Purchase, Uncategorized

Finding your dream home when you haven’t yet sold your previous home can be stressful – but that’s where bridging finance can help.

What is a Bridging Loan?

A bridging loan (or bridging finance) is short-term loan, generally lasting for up to 12 months or until the sale of your old property.

The idea is that the loan creates a financial “bridge”, allowing homeowners to purchase a property before selling their previous one – but there are many aspects to this style of loan that should be considered before signing.

How does a bridging loan work?

Here is a quick example to show you how the process may work

What is bridging finance and how does it work?


What are the benefits of a bridging loan?

  • Fast Approval
    Bridging loans are typically approved quickly, often within a few days, allowing you to secure your dream home faster.
  • Convenient
    A bridging loan allows you to look for and purchase a property without having to wait for your current home to sell. This means you could purchase the dream home you find unexpectedly – or secure a place to live without having to worry about renting between selling and purchasing etc.
  • Flexible Repayments
     The structure of your loan can vary, however, bridging loans typically offer flexible repayment terms, including interest-only repayments, lump sum repayments or the option to repay the loan once your old property has sold.
  • No Need for Temporary Accommodation
    If the timing is right with your bridging loan and your sale/purchase, it’s possible to avoid the cost and hassle of having to rent a home, living with friends or relatives or negotiating a longer (or shorter) settlement period to ensure you have somewhere to live.
  • Avoid Property Chains
    Bridging loans can help you avoid property chains, which can be complex and time-consuming, allowing you to move into your new home faster.
  • Flexibility
    Bridging loans provide flexibility and can be tailored to your unique financial situation, giving you peace of mind knowing that you have the financial support you need to purchase your dream home.


What are the downsides of a bridging loan?

  • Time limits12 months can go by very quickly and a time limit may mean you have to sell your old property at a lower than expected price just to get the sale finalised. If you don’t sell your home in the required time, you could be left with a large interest bill or risk the bank stepping in to sell your property.
  • The selling price risk
    Speaking of lower selling prices, if your property sells for less than expected you may be left with a larger ongoing loan amount – increasing repayments, interest etc and potentially causing financial difficulty.
  • Additional Costs
    Bridging finance may require two property valuations (your existing and new property) which could mean two valuation fees, as well as other fees and charges that come with the loan.
  • Termination Fees
    If your current lender doesn’t offer a bridging loan, you’ll need to switch to a lender who does offer these loans – potentially resulting in early exit fees from your current loan.
  • Interest and Interest Rates
    Interest is usually charged on a monthly basis, so the longer it takes to sell your property, the more interest your new loan will accrue. If you don’t sell your home within the bridging period, you will also typically be charged a higher rate.

How do I know if a bridging loan is right for me?

As everyone’s financial situation is different, it’s important to speak to a professional and do your own research before deciding if a bridging loan is right for you. At Sanford Finance, we’ll work with you to determine the right options for your unique financial situation – finding the right loan options, ensuring you are looking for properties you can afford and walking you from the first steps through to settlement and even refinancing in the future to ensure you always have the right loan for your needs.

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What you can do if your fixed rate is expiring this year

What you can do if your fixed rate is expiring this year

Jan 9, 2023 | Interest rates

It’s no secret that rising interest rates are putting financial pressure on many Australians. With home loan interest rates rising 3% thanks to cash rate hikes from the RBA, many mortgage holders sitting on fixed rates are worrying about what they can expect when their fixed rate term ends.

According to the Commonwealth Bank of Australia, most of their fixed rate loans are set to expire in the first half of 2023 (most of these ending in April/May 2023), meaning that many clients will see a large increase in repayments quite literally overnight.

What happens when your fixed rate expires?

If you let your fixed home rate expire without taking any action, it will generally revert to a variable rate that the lender offers. The revert rate is often higher than the best available interest rates.

There are some things you can do if your fixed rate is expiring this year – and being proactive is never a bad idea.

How to prepare for a mortgage repayment rise

  • Refinance to find the best rate
    Simply leaving your loan to expire and convert to a variable rate is unlikely to be your best option. Whilst your repayments are likely to increase on any variable loan, you don’t want to be paying more than you need to – so reviewing your options is important.If your fixed rate loan is expiring this year, get in touch with our team to see how we can help.
  • Review your budget
    Whilst we recommend regularly reviewing your household budget, it’s certainly a good idea to look at areas where you could potentially save money to afford your increased mortgage repayments – and the only way to know where you can potentially save money is to know where your money is going.
  • Make extra repayments before your fixed rate ends
    We think that extra repayments are always a good idea when you can afford them.Paying off as much of your home loan as possible before your interest rate increases is a good idea, however, not every fixed rate loan allows you to make extra repayments and others may have a limit on what additional repayments can be made.If you are able to make additional repayments, this is certainly something you should consider as it will reduce you total interest charges.
  • Increase your income

Ok, we’re not referring to asking for a pay rise, although it might be worth a try.

If you are an investor, you may consider increasing the rent and passing on some of the cost increases.

We have seen some clients Airbnb their properties on weekends, whilst they live with family. This also applies to holiday homes and lifestyle properties that you are not using on a regular basis.

he sale of smaller assets to help cover the increase mortgage payments or increase cost of living is also popular, these include shares, Crypto, motor vehicles/bikes etc.

Not sure where to start?

Start by contacting our team on (02) 9095 6888 or [email protected]

It can be overwhelming when you come to the end of a fixed rate period, but it doesn’t need to be. We’re here to help you navigate the changes whilst finding the best mortgage options to suit your specific needs.

What difference the First Home Buyer Choice Program could make for you

What difference the First Home Buyer Choice Program could make for you

Dec 6, 2022 | First Home Buyers, Government Grants, Purchase

From 16 January 2023, NSW First Home Buyers will have the option to swap stamp duty for an ongoing property tax with the NSW Government’s First Home Buyer Choice policy.

Whilst this is welcome news for many first home buyers, particularly those who don’t qualify for any stamp duty concessions, there are key efficiencies missing from the policy that could add upwards pressure to housing demand in what is an otherwise soft market – so let’s dive into how it might impact you.

What is the First Home Buyer Choice Policy?

  • Beginning on 16 January 2023, first home buyers will be able to opt out of paying stamp duty in favour of an ongoing annual payment.
  • If the property purchase settles before 15 January 2023, buyers can still access the scheme by seeking a reimbursement on stamp duty from 2023.
  • This policy applies to properties valued under $1.5 million and vacant land purchases below $800,000.
  • Only owner occupiers can access this scheme, however, properties can be later converted to an investment, with a markedly higher rate of ongoing property tax.
  • Purchasers must move into the property within 12 months of purchasing the property and must live in it continuously for a minimum of 6 months before it becomes an investment.
  • The annual property tax will be equal to $400 per annum, plus 0.3% of the value of the land.
  • The property will not be subject to an ongoing property tax once it is sold on.
  • The average property tax payment is set to grow in line with the Gross State Product per capita (a measure of average income). Over the last 15 years, GSP per capita has seen an average growth of 3.2%. Legislation states that individual property taxes cannot grow by more than 4% per year.
  • Stamp duty exemptions will still apply for properties below $650,000 (no stamp duty required) and stamp study concessions will still apply for properties below $800,000 (stamp duty sliding scale)
  • Only first home buyers will have the option to pay an ongoing property tax, whilst all other buyers must pay stamp duty.

What are the pros and cons of this scheme?

Not paying a lump sum sounds like a great idea – but who will the scheme actually benefit?

Removing stamp duty for first home buyers certainly saves on up-front costs of buying a home, however, it does have its downsides. Here are some to consider:

Downsides of the First Home Buyer Choice Policy:

  • By opting for the ongoing property tax, you have an additional annual cost to budget each year (in addition to things like council rates, home insurance etc)
  • Home values may increase as first home buyers do not have to factor in stamp duty into their purchase price, therefore they have more money to put towards their home purchase.
  • For buyers looking to buy a home to live in for many years, the annual fee may end

up costing more than the stamp duty. It’s estimated that the breakeven point for expenditure on stamp duty and property tax is between 36-63 years for units and 21-29 years for houses.

The Benefits of the First Home Buyer Choice Policy:

  • Modelling by the NSW Treasury estimates that the majority of first home buyers purchasing a property between $800,000 and $1.5 million would pay less on ongoing property tax than stamp duty as first home buyers are thought to have relatively short hold periods.
  • First home buyers will have more money to put towards the purchase price as they don’t need to factor in stamp duty costs.
  • Up-front costs are reduced significantly.
  • For FHB’s looking to later sell their property, the savings on property tax may be put towards the purchase price, ultimately benefiting them later.

Which is the right choice for you?

Unfortunately the answer isn’t a simple yes or no, but we are here to help. If you’re looking to purchase property in 2023, get in touch to discuss your options and find out how we can help you secure your dream home.

Making sure you have the right cover

Making sure you have the right cover

Nov 2, 2022 | Insurance

The concept of Total and Permanent Disability (TPD) cover is simple. If you are ill or injured and unlikely to be able to work again, you get paid out under the policy. The difficulty has always been to define what is meant by “unlikely to be able to work again”.

Advances in medical science and technology have meant that people who suffer horrific injuries might be rehabilitated and able to return to work, when some years ago a similar condition would have left them permanently disabled. For instance, by-pass surgery once ended a working career; nowadays normal life can soon be resumed.

Different policies have different definitions and it is an area where insurance companies are developing new features. Typical definitions that may be used are as follows.

The any occupation definition: One definition of TPD is based on your ability to do your own job (or a similar one where you are qualified through your existing education, training and experience or possible retraining).

Example: A painter who suffers a back injury and cannot climb ladders or stand for long periods may be classed as permanently disabled if he has no other employment skills. A teacher who suffers stress- related illnesses when faced by a classroom of children may not meet that classification if she can work outside the classroom as a tutor, examiner or writer of educational material.

The own occupation definition: A second definition is based on your ability to do just your own job. The premiums for this type of cover will be more expensive.

Example: A surgeon who damages his hands may be classed as permanently disabled because he cannot perform surgical operations, but he will still be able to work as a doctor or lecturer though on lower earnings.

Homemaker definition: The definitions above are only suitable for employed people but another definition is based on the ability to live independently. You would be classed as permanently disabled if you could not dress, eat, bathe, maintain personal hygiene or move around your home unaided. This means that a spouse who works in the home and raises children could also be insured – what would it cost to do the shopping, childcare, transport and other activities if your spouse could not do it?

How does TPD cover fit into a risk management plan?

Constructing a plan to protect you and your family against disaster can use a number of different types of policies. Income protection can provide up to 75% of your income if you are unable to do your own work due to illness or injury – but can you service your debts from this income? Trauma cover will pay a lump sum if you are diagnosed with a defined illness – but the premiums can be relatively expensive.

Putting in place the right mix of insurance cover to suit your needs is no easy task, but it is something that our trusted financial planner referral partners deal with every day.

Contact us and we can introduce you to a trusted Financial advisers

Important:
This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business, nor our Licensee takes any responsibility for their action or any service they provide.

Construction costs continue to soar at record rates

Construction costs continue to soar at record rates

Nov 1, 2022 | Construction Loan


Building your own home certainly sounds like a dream. From the floor plan to the flooring, every detail can be customised to your tastes – but this dream has become a nightmare for many Aussies building or looking to build in the current market.

CoreLogic’s Cordell Construction Cost Index (CCI) for Q3 2022 showed that national residential construction costs have increased at a record rate in the year to September 2022, recording the highest annual growth rate (excluding the period impacted by the introduction of GST).

Cost have increased by 11% over the 12 months to September 2022. The quarterly figure was also higher at 4.7%, compared to 2.4% in the previous quarter. This was above the 3.8% surge recorded over the three months to September 2021 when COVID lockdowns were having a more significant impact on domestic supply chains.

Unfortunately for Australians looking to build, the cost is only expected to rise further, with CoreLogic’s Construction Cost Estimation Manager, John Bennett, commenting that the team are continuing to see price increases, particularly across timber and metal materials.

With building materials increasing in price, many suppliers have little choice but to pass on price increases. John also commented that this quarter has also shown a larger increase in materials that were previously stable, such as wall linings including plasterboard and fibre cement. Even your front door will now cost you more with sharp price rises.

Whilst sea freight prices have begun to stabilise, the increasing cost of raw materials, labour and fuel continues to place upward pressure on residential construction costs.

So what is the outlook? Mr Lawless said that ongoing labour shortages and supply issues meant that these conditions would likely remaining challenging with little reprieve expected in the short to medium-term. “There’s no quick solution for providing additional materials and fuel costs remain elevated. All of these factors have an impact and are likely to push building costs higher for some time yet.”

Thinking about building or reconsidering your options?

We’re here to help. Whether you have your heart set on building or renovating or are unsure of what to do next, our team is here to help. We’ll sit down together to look at your options and come up with a plan that’s right for you. Contact us today to find out more.