Bridging Finance is a short-term loan to provide funds for an asset purchase pending a subsequent cash inflow. The source of clearance is usually the sale of another asset (eg, a house). When used for property transactions the amount of Bridging Finance is usually the same as the net cash to be received from the sale.
Most banks only provide Bridging Finance when the source of clearance is assured - typically a loan application would only be approved when supported by a Contract of Sale for an existing property. In other words you have to sell before you buy and use the Bridging Finance simply to 'bridge' the period between the two settlements (that is, of course, unless you can demonstrate to the lender that you can afford the repayments on both loans from regular cash flow; simply having the savings set aside for meet several months' worth of repayments generally doesn't cut it).
An example:
- Buy house for $500,000 plus acquisition costs $25,000 = total outlay $525,000 to be funded by:
30-year Home Loan $200,000
Sale of existing home $325,000 (net equity)
Total funding $525,000
- Settlement is scheduled for 1 March
- You sell your house for $325,000 with settlement scheduled for 30 April
- You would need to apply for two loans; one being the ongoing long-term Home Loan you will pay-off from regular income, the other for 60 days to be cleared from the sale of your own place.
Hope this helps. I have worked for two of the four majors providing mortgage loan finance and am happy to offer assistance if required (in a personal capacity of course, not as a 'salesperson')
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