With the market running hot, we have seen more clients buying a new home before selling their current one. But what are the risks?
The risk is you can’t sell your current home, and you end up with two homes loans instead of one! You need to be aware of the risks and whether the Bank is going to support you through this. If you can afford both the mortgages (as assessed by the Bank), there may not be an issue. If you can’t, you need to understand open and closed bridge options and the likelihood of obtaining one.
Closed Bridge – the preferred way
A closed bridge is when you have an unconditional contract of sale on your current property with a defined settlement date. The Bank will assess your home loan at the end net position after the sale. They will let you carry both the loans over this closed bridged period, as long as you have enough surplus funds in your account to carry the increased home loan repayments for this period.
Open Bridge – understating your risks
If you can’t afford both mortgages and you don’t hold an unconditional contract of sale – this poses a problem. Will the banks lend to you? They may, but it will be restrictive, and ultimately, finance may not be approved.
* you need to have a clear strategy to sell your current home (and meet the market)
* You need surplus funds in your bank account to cover a prolonged period of heightened repayments. This may be substantial given this bridging period has no end date.
* You may have to fix a portion of your new debt so that there is certainty in interest costs
* You may only be able to get a portfolio type product that expires after a year – at which point it needs assessment again, and the Bank can potentially force sell your property
* You may need to provide executed sales agreement with real-estate agents showing your genuine intention to sell
Lenders do not like open bridges as they are lending under a circumstance where their assessment says you can not afford the additional home loan. In many instances, the home loan request will be declined. This is where the risk is!
If you would like to talk through any personal scenarios with me, please feel free to contact e anytime.
Jason O’Shaughnessy
Director
0432 359 973
