In a perfect world, we would all be able to precisely match up the dates that we sell our existing home and purchase a new one. But in the real world many of us find our new dream home before we dispose of our existing one. That can create a problem in financing the gap which is what bridging loans are designed to do.

A bridging loan is a short term home loan designed to allow you to initiate the purchase of a property before you have sold your previous one. Loan terms are often between six and 12 months and bridging loans generally have a higher interest rate than traditional home loans. This can be a great option but carries some risk. It’s important to know that you will be able to make the repayments even in a worst case scenario where your old house doesn’t sell as quickly as you’d hoped or where property values may change unexpectedly.

Various lenders use different models to assess bridging loans and there are some complex calculations involved in determining how much you can borrow and what it will cost you. That’s what we can help you to understand and navigate the options and risks that will lead to you being able to successfully buy before you sell.  

A deposit bond is a tool that, upon agreement with a vendor, can replace the requirement of a cash deposit when purchasing a property. 

This can be a relatively cheap method of initiating the purchase of a property usually without the need to liquidate your other assets. The cost of a bond can vary depending on transaction complexity and the term being sought. In a simple transaction, it is likely to be approximately 1.6% of the amount of the deposit. For example, for a deposit guarantee to the value of 10% of a property price for an individual purchasing an established property in NSW and repaying that guarantee within 6 months on a $50k deposit for a property purchase of $500k, the fee will be about $800.*

A deposit bond is issued by an insurer to the vendor of the property for either the full or partial deposit required. At settlement, the purchaser must pay the full purchase price including the amount of deposit. At this point, the deposit bond becomes void. If the purchaser fails to complete the purchase of the property, the vendor is able to give the deposit bond to the insurer who will provide them the entire value of the deposit bond. The insurer will then seek reimbursement of the deposit bond from the purchaser.

Deposit bonds are generally a fair bit cheaper than a short term loan, but it’s important to talk to us to compare the two, taking into account your requirements and objectives and your financial situation.