Does anyone have personal experience with bridging loans, e.g. https://www.adelaidebank.com.au/globalassets/documents/adela… ?
Seems like a good option in the current market if you are upgrading and in an area where houses are selling quickly.
I’m interested in hearing about experiences with different lenders and how reasonable the rates have been.
Oh dear
Huh?
Having worked for a bank that did these loans (St George/ Bank of Melbourne/ Bank SA)- mind that this information could well be out of date now, so DYOR - interest rate was simply the standard variable, but with no discounts available on the capitalised portion of the loan. End debt could be any SGB product.
You'd have two loans for the duration (six months) calculated like this:
Take your existing home loan balance (needed to be with SGB or refinanced as part of the app), add on the purchase price of new home plus costs, and deduct any deposit you had. Then add on six months' interest calculated on the amount expected to be paid out at sale of current home - the result there is what is called your peak debt. From that, deduct the value of your current home which will be valued at FIRE SALE value ie if you had to sell in a hurry, what could you expect to get - the remaining balance is your end debt, and that's the amount that you need to show you can afford to repay.
The second loan that's set up is a capitalising loan for the remainder of the funds you need eg current loan, costs etc, with a six month term. No repayments are required, but each month interest is added to it until it's cleared by sale of current property.
There are rules around LVRs etc for both peak and end debts which I can't really recall now - it's been quite a few years - but you do need to have some good equity in your current property AND be pretty sure that you can sell within the six months. After that time, if the capitalising loan isn't discharged, it's considered to be in default.
As I said, parameters may have changed in the last few years. Just look up the Relocation Loan on St.George website and see what it says there.
Thanks. The interest rate stated on the at George website is 5.10! Would that be for real or just an outdated error?
Later it says…
Competitive interest rate
The Relocation Loan is our competitive standard variable interest rate.
For your new loan, choose an eligible St.George home loan with an interest rate that suits you.
https://www.stgeorge.com.au/personal/home-loans/our-home-loa…
It's not an error. Most banks have higher rates for bridging loans. The benefit of a bridging loan is they only calculate serviceability based on the end debt (of your new property). There is a higher risk to the bank, hence a higher rate (during the bridging period). The disadvantage is that you must commit to selling the property within a certain period, usually 6 or 12 months. Once you sell you go back onto a normal, competitive rate.
If you can you have borrowing capacity for 2 properties in your own right, (the bank will also use rental income from your old property) then you don't need a bridging loan.
That my friend is the standard variable rate, with no Advantage Package discounts for an owner occupied interest-only loan with LVR between 60% - 80%. That is the rate that is applied to the capitalised (bridging) portion of the loan. It's not a "higher" rate as such, it's just the standard rate with no discounts applied. Have a look at their interest rate chart, you'll see it listed there as standard product. As per my first reply, the end debt - the bit you need to make repayments on - can be any product. That's where you can "choose an eligible St.George home loan with an interest rate that suits you."
From the brochure
If you're with different bank, that could become the dominant cost rather than the interest rate of this product. You will have you discharge from your old bank and then discharge again after you sell the place. Not to mention paying extra for title transfers for a home you about to sell. All for managing cash flow.
If you're with the same bank, you are essentially deferring interests on the old house until you settle. The cost will be the extra interest rate compare to your current loan. May not be that much for up the six months in the scheme of things.