Bridging Loan – Everything You Need To Know

A bridging loan may let you purchase a new property before your old one has been sold. If you’re struggling to get your head around it, don’t stress – Monzi is here to explain it all.

Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

How does a bridging loan work?

Traditionally, you sell your existing house before purchasing your new home with accessible equity. A bridging loan, however, gives you the money you need for your new house before you’ve sold your old one.

Still confused? We don’t blame you. Here’s a working example to make things a little clearer:

You and your family decide it’s time to relocate. You’ve already found the new house you want to buy, but you’re still yet to sell your existing home. Obviously, there is a period of time between receiving the funds from your old property and buying your new one. Bridging finance, as the name suggests, bridges this gap.

Generally, banks calculate the size of your loan by adding up the value of your new property with your existing mortgage and then subtracting the predicted sale price of your current home.

Keep in mind, you may need to make repayments on your original home loan as well as your new bridging loan. The loan converts into your mortgage for the new property after you sell your original property.

Are bridging loans a good idea?

Whether or not bridging finance is a good idea will depend on your individual situation. Moreover, lenders often require that you have a specific amount of equity in your current property.

If you do qualify for bridging finance, ask yourself whether you would rather sell before you buy, or buy before you sell. Both come with their benefits and drawbacks.

Buying before selling

Pros

  • Avoid the hassle and cost of first moving into a rental property before your new home.
  • Don’t have to find a new house to buy in a hurry.
  • May get more bang for your buck if you take advantage of a rising market.

Cons

  • Will likely need a bridging loan. Moreover, interest on these loans is often higher than standard mortgages.
  • You may have to make payments on two home loans at once.
  • Loans must be repaid within 12 months, meaning you may feel rushed into selling your original property.
  • You may need to find additional funds if your property doesn’t sell for the expected price.

Selling before buying

Pros

  • After the sale of your property, you’ll know the exact budget you’re working with for your next purchase.
  • You have time to wait until you’re happy with the sale price of your property.
  • Can avoid taking out bridging finance. Therefore, avoiding paying off two home loans.

Cons

  • May have to spend time living in temporary accommodation until you purchase a new property.
  • Will have to move twice – first into your temporary accommodation and then into your new home.
  • Housing prices fluctuate; you may be priced out of the market if prices go up.

What is the interest rate on a bridging loan?

Unfortunately, we cannot speak on behalf of credit providers. Therefore, we cannot ourselves tell you what interest you may be charged on bridging finance. What we can say, however, is that interest on these loans may look a little different to what you’re used to.

For example, interest is often compounded monthly on bridging finance. Therefore, the longer it takes to sell your original property, the more interest you will accrue.

Moreover, you will generally make interest-only repayments until your original property is sold and your loan is settled.

Finally, consider your bridging period. This will usually be either 6 or 12 months, depending on the lender and the property you’re looking to buy. Lenders may begin charging you a higher interest rate if you fail to sell your original property within this timeframe.

Bridging loans comparison rate

The advertised interest rate for a secured loan is obviously important. However, the advertised comparison rate may be a better indicator of the true cost of your loan.

What can I use bridging finance for?

Bridging finance is intended to cover the cost of a new property without having to sell your existing home.

Do I need a good credit score for bridging finance?

Banks may be unwilling to offer bridging finance to consumers with poor credit history. Generally, lenders have strict lending criteria when it comes to bridging finance.

Ultimately, however, each bank is different. Moreover, every consumer is different. Therefore, consider seeking financial advice for more information on which loans are right for your personal situation.

Bridging loan row of houses

Can Monzi offer me a bridging loan?

No. Unfortunately, Monzi does not work with any lenders able to offer bridging finance. Instead, we may be able to pair you with a lender offering personal finance.

Specifically, we have built up a network of lenders that may be able to offer the following:

  • Small personal loans from $300 to $2,000
  • Medium personal loans from $2,001 to $4,600
  • Large personal loans from $5,000 to $10,000.

Repayment terms may vary depending on the lender. However, small loans may have repayment terms up to 12 months, whereas medium and large loans may have terms ranging between 13 and 24 months.

Am I eligible for Monzi?

We’ve kept our eligibility criteria as open as possible. In fact, there are only four criteria you need to meet:

  • At least 18 years old
  • Australian Citizen or Permanent Resident
  • Have an online banking account with at least 3 months of recent history
  • Have a personal email and mobile contact number.

Meet everything listed above? You’re free to apply. Keep in mind, bridging loans are not available through our lender-finder service.

How to use Monzi’s lender-finder service

Monzi’s lender-finder service comprises of three steps. Moreover, our application form is super simple, so it shouldn’t take long for you to apply. Here’s how it all goes down:

Step one

Head to our website to begin the application. In short, use the loan slider to pick your ideal loan amount and repayment term. Finally, click apply now once you’re happy with your selection.

Step two

Complete the submission form. In short, we only ask for essential pieces of information, so this shouldn’t take you long at all. Finally, once your application is submitted, you can sit back and relax.

Step three

Once your application is live in our system, we’ll try to pair you with a potential lender. If a lender matches with you successfully, they’ll first assess your application before providing an outcome. Lenders send through a digital loan if they can make you an offer.

What credit score do I need for a personal loan?

Personal loans do not require a minimum credit score. This, however, isn’t to see your credit history means nothing. Instead, your credit score plays one part of the assessment process.

Let’s take a working example.

Jim has a poor credit score but is approved for his loan because he earns a consistent income and has a great history of repaying other lenders. On the other hand, Sarah has a better credit score than Jim, but her application is denied because of:

  • her having poor recent history of repaying other lenders
  • inconsistent employment.

As you can see, your credit score is only one piece of the puzzle. Lenders consider a myriad of different factors during the assessment process.

Bridging loan guide

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Factor In

Costs

Two credit cards
Two credit cards

You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000

Terms

12 months

Costs

20% upfront establishment fee

+ 4% monthly fee

Example

Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate

Loan amount

$2,001 - $4,600

Terms

13 months

24 months

Costs

48% annual percantage rate

67.41% comparison rate p.a.

Example

Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principle Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Interest Rate for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000

Terms

13 months

24 months

Costs

21.24% annual percantage rate

48% comparison rate p.a.

Example

Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principle Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Interest Rate for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.