Are you looking to upgrade or relocate to a new home, but unsure how to navigate the financial complexities of buying before selling? Two popular options, Relocation Loans and Bridging Loans with End Debt, can help you make the transition smoother. These short-term financing solutions enable you to purchase a new property before selling your existing one, but they work in different ways and have distinct benefits and drawbacks.
In this article, we’ll break down the key features and differences between Relocation Loans and Bridging Loans with End Debt, helping you make an informed decision that suits your needs.
What is a Relocation Loan?
A relocation loan is a type of financing provided by a bank to help homeowners purchase a new property before selling their current home, particularly when no mortgage is owed on the existing
property. Here’s how it typically works:
1. Loan Amount: The bank provides a loan that covers the purchase price of the new home, as well as associated costs like stamp duty and interest.
2. Security: The loan is usually secured against your existing home, which you own outright. This means the bank can offer more favorable terms since there’s significant equity in the current property.
3. Repayment: The loan is structured so that once your existing home is sold, the proceeds from the sale are used to fully repay the relocation loan. Ideally, this leaves you debt-free after the transaction is complete.
4. Interest Payments: During the period between purchasing the new property and selling the old one, you may be required to make interest-only payments on the loan. The full repayment of the loan (principal and any remaining interest) occurs after the sale of your existing property.
5. No Ongoing Debt: The key benefit of this type of loan is that it allows you to buy your next home without waiting to sell your current one, with the assurance that the loan will be fully repaid once the sale is finalized, leaving you with no ongoing debt.
This loan is particularly useful in hot real estate markets where you may need to move quickly to secure a new property before your existing home is sold.
Fees $1500+ GST Plus Bank Fees
What is a Bridging Loan?
A bridging loan with an end debt is a short-term loan designed to help you purchase a new property before selling your existing one. Unlike a standard bridging loan, which is typically repaid in full once your current property is sold, this type of loan may leave you with some remaining debt after the transaction. Here’s how it works:
How a Bridging Loan with End Debt Works:
1. Loan Amount: The bank provides a loan to cover the purchase of your new property. This may include the purchase price, associated costs like stamp duty, and potentially some renovation or relocation expenses.
2. Security: The loan is secured against your existing property and possibly the new property as well. Since you’re leveraging the equity in your current home, the bank can lend you a significant amount.
3.Repayment Structure
– Initial Period: During the bridging period (the time between buying the new property and selling the old one), you typically make interest-only payments on the loan.
– End Debt: After the sale of your existing property, the proceeds are used to pay down the bridging loan. However, if the sale proceeds do not fully cover the loan (perhaps due to a lower sale price or other costs), the remaining balance becomes an “end debt.” This remaining debt is then converted into a standard mortgage or personal loan, which you must continue to repay over time.
4. Interest Rates: Bridging loans often have higher interest rates compared to traditional mortgages due to the short-term and higher-risk nature of the loan. The interest may be capitalized (added to the loan balance) during the bridging period, meaning you only start paying off the interest and any remaining debt once the bridging period ends.
5. End Debt Repayment: The end debt portion is treated like a regular loan. You’ll be required to make monthly repayments until it’s fully paid off. The terms, such as interest rate and repayment period, are negotiated with the lender once the bridging period ends.
