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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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How your daily spending is impacting your borrowing power

How your daily spending is impacting your borrowing power

Oct 4, 2022 | Borrowing Power

Your morning coffee, a quick lunch with your colleagues, ingredients for dinner, your Netflix subscription… ordinary day-to-day expenses, but did you know that these can considerably reduce the amount you are eligible to borrow, even if you are a high income earner?

If you’re planning to buy a home, now might be the time to Spring clean your expenses and set yourself a weekly budget and here’s why:

Why do lenders care about living expenses?

Mortgage brokers and lenders are required to meet ‘responsible lending’ guidelines under the National Consumer Credit Protection Act (NCCP). These guidelines are designed to ensure that a borrower can afford to make the repayments on their loan without suffering ‘substantial hardship’.

This means, by law, all mortgage brokers and lenders must ensure that you have plenty of money left over from your income to repay your loan after you have covered your regular financial commitments.

What are living expenses?

A living expense is defined as anything that you spend your money on. Your morning coffee, Netflix subscription, monthly dinner out with friends and gym membership all count – even if you don’t see them as essential or could easily live without them.

When applying for a loan, we have to perform a thorough living expense and income assessment which determines your true financial position – and all of these expenses are included.

According to a 2018 survey by UBank, 86% of Australians don’t know how much money they spend every month on their living expenses – and those small expenses can quickly add up.

Without tracking your purchases, it’s easy to spend more than you earn without even realising – especially if you use a credit card.

But what if I plan to change my spending habits?

You might think “once I buy a property I’ll….”, but to most lenders, all that matters is how you’re spending money now.

Tips for controlling your living expenses

In order to control your living expenses, you first need to know where your money is going.

ASIC have a free MoneySmart Budget Planner that is a great place to start and it can be downloaded here. Another great tool from ASIC is the MoneySmart TrackMySpend app which helps you to record your weekly household budget, nominate spending limits, separate ‘needs’ from ‘wants’ and kickstart your savings goals.

How do we perform a living expenses assessment?

As mentioned, as part of the borrowing process, we need to conduct a thorough living expenses assessment. To do this, we’ll provide you with a Needs Analysis Questionnaire to help you work out your living expenses.

These expenses are divided into simple categories, including:

  • Childcare
    Including formal day care, nannies and occasional babysitters or childminding services.
  • Personal Care
    Clothing, footwear, cosmetics, personal hygiene products, hairdressing, manicures, massages etc.
  • Education
    All educational costs/fees for the borrower and any dependents, including books, uniforms, equipment and excursions.
  • Groceries
    This includes meat, fruit, vegetables and anything you might buy from a supermarket, including cleaning products.
  • Insurance
    This includes health, home, car, life, pet and all other insurances you may have.
  • Medical
    Doctors visits, dental care, pharmaceutical prescriptions, optical etc.
  • Utilities and Home Expenses
    Gas, water, electricity, rates, taxes, levies and any other costs for running your own home.
  • Entertainment
    Movie tickets, take away food, club memberships, gifts, holidays, hobbies and all recreational expenses.
  • Connections
    Includes expenses such as mobile phone plans, internet, home phones, magazine subscriptions, streaming services etc.
  • Transport
    Including personal vehicle expenses like petrol, tolls, insurance and car registration as well as public transport, car parking, car servicing and maintenance.
  • Rent
    This is for rent on a property that you live, board (if you are living with your parents or renting a room) or similar housing costs.
    Note: If you are buying a home you intend to occupy, rental expenses are not included as part of your living expenses assessment.
  • Investment Property Expenses
    Including any costs you are responsible for paying, such as council rates, insurance, property management fees, taxes and levies, body corporate and strata fees, maintenance etc.
  • Other
    All other expenses that do not fit into the above categories.

When should I cut back on expenses?

If you’re planning on purchasing a property, the best time to start is now. Regardless of whether you’re purchasing a home for yourself or an investment, it’s important to know how much you’re spending and where.

Remember that a lender will only give you a loan for an amount you can afford to repay, so cutting back on your everyday spending could give you increased borrowing power and will maximise the chances of your loan getting approved the first time.

Where do I start?

We are happy to run through your living expenses and help you find ways to budget and increase your borrowing power. Just contact our team via the website here, or give us a call on (02) 9095 6888.

What is a family guarantee and how can it help you secure your home?

What is a family guarantee and how can it help you secure your home?

Sep 1, 2022 | First Home Buyers, Investment Property, Purchase

It’s no secret that saving for a home deposit can be difficult. Whether you’re juggling the

cost of renting, further education or even just the rising cost of living, the dream of owning
a home can feel like a long shot – but there is something that could help you secure that
dream sooner.

A family security guarantee is commonly used by home buyers when they aren’t able to
secure a loan on their own.

What is a family security guarantee?

For borrowers who aren’t able to reach a deposit (as required by the lender) on their home
loan, a Family Security Guarantee may be a solution.

This allows a family member to act as a guarantor to secure your deposit, giving you greater
borrowing power. This can reduce your Loan to Value Ratio (LVR) to under 80%, removing
the need to pay Lender’s Mortgage Insurance (LMI) on top of your deposit.

That family member can choose to use equity from their home or cash (for example, savings
or term deposit funds) to use as security for your loan, however, they will not need to give
any funds directly to you or the lender.

What are the benefits of a Family Guarantee/Guarantor?

  • Borrowers can finance up to 100% of the purchase price, plus costs
  • Lender’s Mortgage Insurance and Low Deposit Premiums can be avoided
  • Wider range of loan products to choose from
  • Additional interest rate discounts available
  • You may be able to enter the market sooner than you would be able to otherwise
    What does this kind of loan look like?

Here is a quick example of how a Family Guarantee can work:

Jane is looking to purchase a property valued at $500,000. To do this, she needs to borrow
$450,000 to cover the loan abouts and other costs (not including LMI).

Loan Amount ÷ Property Value = LVR

$450,000 ÷ $500,000 x 100 = 90%

With an LVR of 90%, Jane would need to pay LMI as an added cost, however, if she adds a
Family Security Guarantee of $70,000 as additional security, the LVR on the loan reduces

Loan Amount ÷ (Property Value + Security Guarantee amount) = LVR

$450,000 ÷ ($500,000 + $70,000) x 100 = 79%

With a new LVR of 79%, Jane no longer requires LMI, saving her a significant amount of
money on her property purchase.

The details:

  • The value ($) of the guarantee can be limited to 20% of the purchase price, plus costs
    (including stamp duty, legal fees etc).
  • In most cases there are no servicing requirements from the Guarantor/s (this is not
    an income guarantee)
  • A second mortgage may be available if the guarantor’s current mortgage is with a
    different lender

How long does the guarantee last?

You can remove the guarantee when:

  • You haven’t missed any payments in the last 6 months
  • Your loan is less than 80% of the property value (you can still remove the guarantee
    if you owe more than this, however, you will need to pay LMI to achieve this)
    Most guarantees last from 2-5 years, depending on property prices and your ability to pay
    down your loan.

Want to see if this is suitable for you?

Get in touch with our team today to discuss your options. Send us an email or call us on (02)
9095 6888

Why the Home Loan Inquiry should make you reconsider your loan

Why the Home Loan Inquiry should make you reconsider your loan

Aug 2, 2022 | Refinance

In October 2019, the Treasurer direct the ACCC to conduct an enquiry into home loan pricing, wanting the commission to investigate two key concerns:

  • The prices charged for home loans since 1 January 2019
  • Impediments to borrowers switching to alternative lenders

Whilst the interim report, focusing on home loan prices, was released in April 2020, the final report has now been released which has found that many Australians with older home loans continue to pay significantly higher interest rates than those with newer loans.

This report also focuses on impediments to borrowers switching to alternative lenders and identifies recommendations to address these impediments. The ACCC also recommended that the Government action a further 5-year monitoring enquiry into pricing and competition in the home loan market.

So, let’s break down the recommendations outlined in the report and how you can action that advice yourself today.

All lenders should be required to provide an annual prompt to borrowers with older variable rates (loans three or more years old)

This recommendation is to encourage borrowers to engage in the home loan market so that they can potentially switch lenders or home loan products.

The problem, however, is that for a lender, complacency drives income. Often referred to as the “loyalty tax”, lenders often make a lot more money on customers who “set and forget” their loans – sticking with the original loan for years, if not, the full length of the loan.

Solving the problem now: Instead of waiting for the government to set requirements for lenders, you can act today.

At Sanford Finance, we do this for you, monitoring and reviewing every client’s loan annually, ensuring you always have the best loan product for your needs. In addition to this, we also encourage clients to get in contact should they feel their rate is too high or their circumstances have changed, and the loan product no longer suits their needs.

All lenders should provide borrowers with a standardised form to discharge the borrower’s home loan from their existing lender

The goal of this recommendation is to make it easier for borrowers to switch loans – providing a form which is easy to access, fill out and submit. They also recommended that a 10-day time limit be placed on lenders to complete the discharge process.

Currently the process to switch from one lender to another varies greatly depending on which lender you are currently with. For some lenders, the process is made simple whilst others make the task arduous and frustrating, often leading to borrowers sticking with their loan just to avoid the process.

Solving the problem now: If the thought of refinancing or switching lenders stresses you out (or feels like another thing on the to-do list that you just don’t have time for) we’re here to help. Whilst we can guarantee the discharge process will be done in 10 days, our team will do everything in our power to speed up the process.

Get in touch with our team today so we can assess your loan and find a loan product that’s more suited to your needs.

Who should consider renegotiating their loan?

With the Home Loan Inquiry identifying that, as at December 2019, almost half of all variable rate loans were at least four years old, most Australians should take the time to look at their loan and see if there is a better rate or loan product available.

As of September 2020, borrowers with home loans between three and five years old were, on average, paying around 58 basis points above the interest rate for new loans. Borrowers with home loans between five and ten years old were, on average, paying around 71 basis points above the average interest rate for new loans.  Borrowers with loans older than ten years old were, on average, paying around 104 basis points above the average interest rate for new loans.

Many of these borrowers could save a significant amount of money by switching to a new home loan. For example, if a borrower with a home loan of $250,000 switched to a home loan with an interest rate 58 basis points lower than their existing loan, they would save over $1,400 in interest in the first year. Over the remaining life of their loan, that borrower would save over $17,000 in interest in net present value terms.

Where should you start?

Thinking that now is the right time to look at your loan and find a better deal?

Get in touch with our team today to start the ball rolling. We’ll work with you to look at your current loan, your present circumstances and will recommend alternate loans that are better suited to your needs.

How consolidating your debt could save you money

How consolidating your debt could save you money

Jun 8, 2022 | Debt Consolidation

With interest rates and the cost of living rising, many Australians are searching for ways they can save money each month – but there’s one way you may not have thought of.

Debt consolidation involves bringing your existing debts together into one new loan. The objective is to reduce the number of individual payments you make and reduce the interest rate you are paying on your more expensive debts.

Who should consider debt consolidation?

Debt consolidation may be something to consider if you are:

  • Paying a very high interest rate on your debts – for example a credit card, cash advance debts or store credit purchases.
  • Managing multiple debt repayments and struggling to keep track of what is due and when.
  • Getting into a credit trap where all of your spare income is used to pay interest, but you don’t have enough left over to reduce your debt balances.

What does debt consolidation look like?

There are several different strategies that can be used to consolidate debts, including:

  • Moving debts to a new credit facility (e.g. a personal loan or mortgage) with a lower rate of interest or lower fees.
  • Lengthening the time of existing loans (e.g. taking a mortgage debt back out to the 30-year loan term).
  • Changing the repayment terms on an existing loan to interest only.

A combination of these strategies can also be used, depending on your circumstances.

What are the benefits of debt consolidation?

Usually, debt consolidation is implemented to make it easier for you to pay your debts, however, there are numerous other benefits, including:

  • Potential cash savings – Potentially the biggest benefit of debt consolidation. By consolidating your debt into a loan charging a lower interest rate, you have the potential to save interest on monthly repayments and reduce your overall interest.
  • Lower repayments – Reducing the interest rate and spreading out repayments over time could potentially reduce the monthly repayment due.
  • Simplicity – One loan repayment is a lot easier to manage than juggling several repayments.
  • Savings on interest and fees – Debt consolidation could potentially reduce the amount of interest you pay on high-interest facilities such as credit cards and save you money on fees for multiple credit facilities. This may make it easier to pay back your debts.
  • Stress relief – Specialist lenders are available that may lend to you if you have missed repayments on your current debts, or if you have a poor credit history.

What is important to remember about debt consolidation?

It’s important to remember that a debt consolidation strategy doesn’t reduce your debt – it just makes your repayments more manageable.

A debt consolidation strategy should be implemented in combination with a change to your spending behaviour, so that you can work to reduce your overall debt level over time.

Want to chat about debt consolidation?

Give our team a call on 9095 6888