When assessing your eligibility for a bridging loan, lenders will look at the following criteria:

• Your current home equity
• Your end-debt
• With or without end-debt
• Sale contract for existing property

Funds are usually provided very fast in comparison to mortgages and can therefore make a great alternative. A word of caution, bridging loans usually come with high-interest rates and fees and for this reason, are generally used as a last resort. Nonetheless, they can make financial sense when used correctly. Speak to our team at Smart Mortgage & Lending to see if bridging finance is the right lending solution for you.

Lenders usually charge a higher rate of interest on a bridging loan compared to a traditional home loan. As the interest is calculated on a daily basis, the longer it takes to sell your existing house, the more expensive a bridging loan will become for you.

The cons of a bridge loan typically involve a high interest rate, transaction costs and the uncertainty in the sale of the asset where the money it tied up. Bridging loans are meant to be temporary devices to free up money that is tied up pending the sale of the real estate asset.

No, however, if you don't have a cash deposit you will need at least 25% of the purchase price as available equity. You'll also need to find the 5-10% deposit for your new property purchase.

Loan capitalisation payments refer to the practice of adding unpaid interest or fees to the principal balance of a loan. Instead of making immediate payments towards the accrued interest or fees, they are added to the loan balance, resulting in an increased total amount owed. In the context of a bridging loan, capitalising payments is often applied when the borrower is unable to make interest payments during the loan term, typically until the sale of their existing property.

Instead of requiring immediate interest payments, the interest is capitalised and added to the principal balance. This means that the borrower doesn't have to make regular interest payments during the bridging loan period, and the total amount owed (known as the Peak Debt) increases over time. Once the existing property is sold, the proceeds from the sale are used to reduce the Peak Debt.

The remaining debt, after deducting the net proceeds of the sale, becomes the End Debt, which is repaid as a standard mortgage product. It is important to note that capitalising payments can lead to an increase in the overall cost of the loan, as interest continues to accrue on the higher loan balance. Capitalising payments can provide short-term financial relief by deferring interest payments until a later date, but it's essential to carefully consider the implications and potential costs associated with capitalising interest or fees, as it can result in a higher overall debt burden.