If you scroll down to the bottom of our newsletter each week to glance at the interest rates, you may have noticed not much has changed for a while. This makes a nice change from the ‘sea of red’ that persisted for so long with numbers going up regularly.
So what is the current thinking about rate reductions? This is challenging to answer because new data each week seems to reveal different scenarios. I’ve been in this industry for a long time now and never have I known such uncertainty.
The big four banks have varying views on this at the moment, and whilst this is not unusual, the difference in their predictions is quite large. Both CBA and Westpac are saying late this year, ANZ is predicting early 2025, whilst NAB is saying mid 2025.
Do they agree on anything? Yes, they all agree that the cash rate has peaked. Let’s hope they’ve gotten that right.
In this week’s newsletter, we look at bridging loans and how they can help buyers transition from one home to the next.
Bridging loans are short-term financing options designed to help property buyers transition smoothly between selling their existing property and purchasing a new one. Here’s how they work and the key pros and cons to consider.
How Do They Work?
Application and Approval: Apply for a bridging loan with a lender, providing details about the existing property, the new property, and the expected sale price of the current home.
Loan Structure: The loan covers the purchase of the new property before the sale of the existing one. Typically, it has two parts: the ongoing mortgage on the existing property and the bridging loan for the new purchase.
Repayment: Interest on the bridging loan can be capitalised, meaning it’s added to the loan balance, payable once the existing property sells. Alternatively, interest can be paid monthly.
Settlement Period: Once the old property is sold, the proceeds go towards repaying the bridging loan. Any remaining balance is then rolled into a standard mortgage on the new property.
Pros
Convenience: Allows buyers to purchase a new property without waiting for the sale of their current home, avoiding the need for temporary housing.
Flexibility: Provides financial flexibility and peace of mind, knowing the new property is secured.
Capitalisation Option: Interest can be capitalized, meaning no out-of-pocket interest payments during the bridging period.
Cons
Higher Interest Rates: Bridging loans often come with higher interest rates compared to standard mortgages, increasing overall costs.
Double Mortgage Payments: If not capitalized, borrowers might have to manage two mortgage payments simultaneously.
Market Risk: If the existing property takes longer to sell or sells for less than expected, borrowers might face financial strain.
Short-Term Solution: Bridging loans are short-term solutions, usually lasting 6-12 months, requiring prompt sale of the existing property.
Understanding how bridging loans work and weighing the pros and cons can help property buyers make informed decisions during the transition between homes.
Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.