A Bridging Loan is a 'short-term' loan that helps applicants 'bridge the gap' between buying a new home, and selling their old one. Applicants will, for a period (generally 12 months max) have 2 x securities (and 2 x loans). When the applicants sell their old property, they will repay the debt owing against the old property, and be left with a regular mortgage with the remaining debt against their new home.
Generally, a bridging loan will have:
Peak Debt - this will be the total amount you owe, during the bridging period - ie your existing mortgage + your new mortgage (and any purchase costs)
End Debt - this will be the remaining mortgage, after you have sold your original home, and use the money to pay down the old mortgage (and maybe some of your new mortgage). The end debt becomes the new home loan, after the bridging period.
There are also 2 general types of Bridging Loans:
Open Bridging Loan - this is where you have already bought your new home, but haven't sold your old home. In this case, you are just bridging for up to 12 months (whatever time you think you need to sell your old home).
Closed Bridging Loan - this is where you have already bought your new home, but have sold your old home (you have a contract of sale, but have not yet settled the sale). In this case, you are just bridging to settlement of the old home.
Bridging Loans will have capitalised interest during the Bridging Period - this is where your interest is accrued, but not you make no repayments - your interest is added to your loan balance and paid off when you sell/settle your old home.
This article takes you how to enter the required detail in Loanapp and submit a Bridging Loan to your Lender. For the purposes of this article, we have the following scenario:
Existing property: 22 Camira St, Maroubra NSW 2035 (Owns with Mortgage)
Existing Mortgage $1.2 million.
Selling for $4 million
New property: 42 Raff Avenue Holland Park QLD 4121 (Purchasing)
Purchase Price $2.5 million
The total property value during Bridging period is $6.5 million; with the total debt $3.7million ($1.2m + $2.5m)
The applicants will pay down the debt with the sale of the existing property, and have an end debt of $1m (ie pay down $2.7million)
Your Lender may or may not allow End Debt to be paid down with proceeds - please check with your Lender on their Bridging Product and Policy
Setup Page
In the Setup Page, you will want to select "Yes" on the Bridging Finance? toggle:
This will conditionally update the Loanapp interface and logic with specific Bridging Loan requirements.
In the Loan Amount field, you should enter the Peak Debt of $3.7 million:
Applicants Page
Complete the applicants details on the applicants' page as you normally would.
Financial Position
On the Financial Position page, you will enter the applicant's assets, liabilities and living expenses.
Existing Property 'to be sold'
In the Assets section, you will add the Existing Property. It is important that:
the property is set as "to be used as security" and
you tick "to be sold"
You will note when you save and close this property modal, the record on the Financial Position will be noted as "To Be Sold":
In this scenario, there is an existing liability, which I will add to be linked to this security property. As this mortgage is to be paid out when the existing property sale is settled, you should set "clearing balance on settlement" as Yes:
Complete the rest of the Financial Position as you normally would.
Securities section
Your Existing Property (that you have marked "to be sold") will be populated in the Securities section, with some new fields against the record - "Net Proceeds from sale & savings", and "Contract of Sale". These need to be completed to give the Lender an understanding of how you are to pay down the bridging loan.
Net Proceeds from sale & savings
In this field, you will need to enter the amount that your applicants plan to pay down the bridging loan when they have sold/settled their existing property. This amount will determine the end debt of your loan.
In this scenario, the applicants are to have an end debt of $1million - and so will contributing net proceeds of $2.7million when they settle the sale of their existing property:
Contract of Sale
Contract of Sale should be ticked if the existing property is already sold (but yet to be settled). If your applicants have not yet sold their existing property, leave unticked.
Add the (new) Purchase property
While the existing property is already noted in the Securities section, you will need to also add the new Purchase property. To do this, click Add:
A new property modal will popup for you to complete the details. The transaction will need to be Purchasing:
(If the Lender allows it, you can set this property to be an approval in principle)
Enter the property address, and ensure it is 'to be used as security' = YES:
You will now have 2 security properties:
1 x 'to be sold'
1 x purchase
You should complete the Contract of Sale details for the property to be purchased:
Loan Amount Details
In this scenario, the applicants will be leaving a debt at the end of the Bridging period, of $1 million. Therefore
The Peak Debt is $3.7 million
The End Debt is $1 million
To configure this in Loanapp, you will need 2 loan splits. In the Loan Requirements section, you will find that it has been auto-filled with the Total Borrowing Amount (from the Setup page) and the Total net proceeds (from the securities section). Ensure you tick Split Loan:
You can then add the high-level loan and pay-down amounts for the loan/s:
Bridging Loan Split
The Bridging Loan split will be the amount that you need to cover for the Existing property, until you sell it (ie your existing mortgage). For this split, you should choose:
Loan Type: Bridging
Payment Type: Interest Capitalised
Loan Term: from 6 months to 1 year
End Debt (Ongoing Mortgage) Split
The End Debt (Ongoing Mortgage) in this scenario is $1,000,000 - however the mortgage required is $2,500,000 - with $1,500,000 to be paid down when the existing property settles:
Given we have set that $1.5m will pay down the 2nd split - Loanapp will correctly calculate the Peak Debt and End Debt (with fees capitalised):
Complete the application and submit as you normally would.