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How Much Does a Bridging Loan Cost?

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Bridging loans are designed for those who are in a transitional phase, moving from one home to another. This type of finance is made for those who want to buy or build a property while selling their current home.  

Most borrowers opt for a bridging loan so they won’t have to take out a second mortgage or pay for two loans at the same time. But there are still some additional costs that need to be considered when taking out a bridging loan. In this article, we outline the fees to expect, as well as related costs. 

Costs associated with bridging finance 

The actual cost of bridging finance depends on various factors. But they’re mainly determined by the fees imposed by the lenders and the debt you’ve accrued. With a bridging loan, you’ll encounter upfront costs along with additional debt, which are as follows: 

Exit fees from the existing loan 

When you take out a bridging loan, the lender pays off your existing mortgage. This means you’ll be terminating your home loan earlier than the agreed-upon term, so penalty fees may apply. This is especially true if you’re getting a bridging loan from a different lender. 

Possible fees for closing your mortgage early include exit fees, early break fees, and/or early payment fees. It’s best to discuss potential extra fees and costs with your current lender before applying for a bridging loan to avoid costly surprises. 

Application fees for bridging finance 

Applying for a bridging loan comes with its own set of fees, as well. Some additional expenses include an application fee or establishment fee, stamp duty, settlement fees, and other ongoing costs like monthly and annual fees. Including these fees in your budget is important to get a better idea of the bridging loan’s actual cost. 

The amount of fees may differ depending on the lender. If you want to save more overall, finding a lender with minimal fees is ideal.

Peak debt 

Your peak debt is a combination of the remaining balance you owe on your previous mortgage plus the funds you’ve borrowed to purchase the new property. It also includes all the fees related to closing your old mortgage and opening your new bridging loan. 

As the name suggests, the peak debt is the highest amount you’ll owe during your bridging loan. The peak debt is calculated before you sell your current property and start making repayments, so it may seem quite high at first glance. 

End debt 

When your existing property is sold, the proceeds from that sale will go directly to reducing the peak debt. This will also cover additional fees such as sale costs and agent fees. Whatever’s left of your bridging loan balance after that will become the end debt. 

Once the bridging period is over, your bridging finance will turn into a standard mortgage. This means you’ll be making regular repayments towards the end debt until it's fully paid off. 

Interest payments 

Usually, minimum repayments during the bridging period are interest-only. This means borrowers don’t have to make payments towards both the remaining balance on their existing loans and the new loan they’ve taken out. 

Sometimes the interest during the bridging term is capitalised until the sale of the existing home. This lets the interest accrue, then it is added to the peak debt. Doing so can help borrowers manage their finances better during the bridging period, but can increase peak debt. 

Other factors that affect bridging loan costs 

Bridging finance costs can change depending on the following factors: 

  • Interest rates – This will directly impact the overall cost of your bridging loan. The higher the interest rate of your loan, the more interest you pay and vice versa. To save interest costs on your bridging loan, finding competitive rates is a must. 
  • Loan term – For bridging loans, the terms are between six to 12 months, depending on how quickly you are planning to sell your existing property. The duration of the loan term will determine how long you’ll be making interest-only payments or how much interest will accrue. 
  • Repayment frequency – When your bridging loan transitions into a standard mortgage, the repayment frequency can affect the amount of interest you pay over the life of the loan. More frequent repayments can help you save on interest and pay off your mortgage quicker.   
  • Home loan amount – The amount of money you borrow will also affect the total cost of your bridging loan. The more you borrow, the more you’ll have to pay.  

Want to learn more about bridging loans? 

As this advice is general in nature, it’s best to speak with an expert to ensure it suits your needs.

Our friendly lending specialists are here to help you find the perfect solution for your finance needs. Get in touch with them today by calling 13 10 90. Or you can apply online today

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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