Bridging Loan Experiences. Not sure which route to take!

Hi all,

A bit naive and overwhelmed in this realm, despite doing our research.
Anyone had personal experience with a bridging loan?

We have a mortgage currently and want to get one so we can build a new home, conscious that they only last 12 months and build time would be cutting it fine.

I'm just not sure what to do..does anyone have some advice? And yes I have engaged a financial planner, but the appointment is delayed due to Covid. And I just want to bounce some other ideas around aside from my own right now.

We owe $390k on our current loan with our home valued at around $670k. Land will be purchased for $650k, and looks like build will cost $400k ish. It seems like a huge loan??

Other option is to keep this home at the end of it and rent it out for $680-700 per week (as per appraisal). But I don't know which option would be better for us long term?

Any help is much appreciated. Thanks!

 

I'd generally avoid bridging loan if I could because of how tedious it is. But for genuine scenarios like yours, as long as you can service the whole loan then it shouldn't be an issue.

Why is renting out your current property the "other" option? $700pw on a $670k property sounds like a good yield to me.

 

Bridging loans are generally not available for construction.
Can you service both loans at the same time?

What are you engaging a financial planner for?

 

Sorry I meant, at the end of construction. Instead of selling, we could potentially keep it as an investment which would pay the current mortgage plus some of the new one.

 

Oh really? I'm sure our mortgage broker said it could be done (yet to get more detail though). Financial planner is being engaged just so we don't royally eff up our lives with a bad decision ha. I mean we trust the mortgage broker, but he's probably not the person who will tell us it's a bad idea, given a bigger loan will get him higher commission.

 

It might be possible, I am not sure off the top of my head. But you might also qualify without the bridge. Did they suggest a lender?

This is not something that a planner would be good for generally. Some might be though. It doesn't involve financial advice as property is not a financial product.

 

Doesn't look like you even equity to do a bridging loan. Val at $670k will only give you $142k in usable equity while your total cost will be around $1.08m including stamp duty. This is even before taking on any buffers on the valuations.

Assuming you're throwing in cash yourself ?

Also not so much a scenario for a FP.

 

Bridging loans are low value commission for brokers generally as lenders pay on the end debt after you have sold and paid down the loan. That and its the equivalent of at least 2 normal home loans worth of work, quite often messy and stressful too. Hence why most lenders don't even offer them nowadays. So you can safely discount that your broker would recommend bridging just for a higher commission@!

That all aside lets look at the numbers as presented.
* Funds required = all debt before you sell. $390K + $650K + $400K + $30K stamps = $1,470K.
* Peak Debt = $1,470K + $50K allowance for 12 months interest on the land and construction = $1,520K.
* Equity = value of both properties once complete. $670K + $1050K = $1,720K.
* End loan = $1520K - $670K sale price + $20K costs + $67K 10% buffer on sale price = $937K
* LVR on peak debt = 88%
* End LVR = 89%

So with your LVR unless you are putting funds into the land / build it is not really feasible.