Bridging Finance is a type of short-term, usually unsecured, loan that typically lasts six months or less. They are often used by people who have an asset but need cash quickly and can’t get a bank loan. In this article, we explore the ins and outs of Bridging Finance in New Zealand.
What is Bridging Finance?
Bridging finance is a type of short-term loan that can be used to ‘bridge the gap’ between the purchase of a new property and the sale of your old one. It can also be used if you need to access equity in your property for other purposes, such as home improvements or business investment. Bridging finance usually comes with a higher interest rate than a standard home loan, as it is considered a higher risk by lenders. However, it can be a useful option if you need to access funds quickly and are unable to obtain traditional finance.
If you’re thinking about taking out bridging finance, it’s important to speak to an experienced mortgage broker who can assess your individual circumstances and advise on the best course of action. They will also be able to negotiate with lenders on your behalf and find the most competitive rates available.
The Benefits of Bridging Finance
If you’re looking to purchase a new property but haven’t yet sold your old one, bridging finance can be a great option. Bridging finance can help to ‘bridge the gap’ between the sale of your old property and the purchase of your new one, allowing you to buy your new property without having to wait for the sale of your old one to go through.
There are a number of benefits to taking out bridging finance, including:
– You won’t miss out on your dream property: If you’re looking at properties that are in high demand, using bridging finance can help you to secure the property before someone else does.
– It can be cheaper than other types of finance: Because bridging finance is typically only for a short period of time (usually around 12 months), the interest rates are often lower than other types of finance such as a standard home loan.
– It’s flexible: Bridging finance can be used for a range of different purposes, whether you’re wanting to buy an investment property, or renovate your current home.
If you’re considering taking out bridging finance, make sure to speak to a financial advisor to see if it’s the right option
How Does It Work?
Bridging finance is a type of short-term loan that can be used to ‘bridge’ the gap between the purchase of a property and the sale of another. It is typically used by investors when they are looking to buy a property before selling their current one.
Bridging finance can be a useful tool if used correctly, however, it is important to understand how it works before taking out a loan. Here are some things you need to know about bridging finance in New Zealand:
How Does Bridging Finance Work?
In order to take out a bridging loan, you must have equity in another property that can be used as security. The loan amount will be based on the value of this security property.
The loan is then typically interest-only for the length of the loan term, which is usually around 12 months. This means that you only need to pay the interest on the loan each month, not the principle amount.
At the end of the term, you will need to repay the full amount of the loan plus any interest that has accrued. This can be done by selling your security property, or if you have sold your other property and have the funds available
How much does it cost?
When it comes to bridging finance in New Zealand, the cost will vary depending on the lender and the loan amount. However, as a general rule of thumb, you can expect to pay around 2-5% of the loan amount in interest and fees. This means that if you’re borrowing $100,000, you can expect to pay between $2,000 and $5,000 in interest and fees.
Types of Bridging Finance.
There are many types of bridging finance available in New Zealand. The most common type is a short-term loan, which can be used to bridge the gap between the purchase of a new property and the sale of your old one. Other types of bridging finance include asset finance, mezzanine finance, and development finance.
Short-term loans are typically for a period of 12 months or less, and can be used for both residential and commercial properties. They are typically interest only, meaning that you only pay the interest on the loan each month and not the principal. This can make them more affordable in the short-term, but you will need to make sure that you can repay the loan in full at the end of the term.
Asset finance is another type of bridging finance which can be used to purchase plant and machinery, vehicles, or other equipment. This type of finance is usually asset-backed, meaning that the lender has security over the asset purchased with the loan. This can make it easier to obtain financing, but it also means that if you default on the loan, the lender can seize the asset.
Mezzanine finance is a form of debt capital that sits between equity