Bridging & Changeover Loans

Bridging & Changeover Loans allow you to purchase and settle on a new property before the sale and settlement of your original property is completed. For a short time you own two properties.

The essential difference between a bridging loan and a changeover loan is that there is a home loan debt left over after the sale of the original property goes through. Usually this means that the purchaser is trading up rather then trading down. For example, you own a property worth $300,000 and you still owe $120000. You buy a new property for $400000 + costs of $23000. So for a short time you owe $543000. After the sale of the original property is completed the loan will reduce to approx $243000. Because there is a residual debt following the sale of the first property then this would qualify as a changeover loan. Conversely, if you own a property worth $400000 that has no debt and you purchased a property for $300000 + costs $17000 you would owe $317000 but after the sale of the original property was completed the loan would be fully paid out then this would be considered a bridging loan.

It is important to understand that the lender will require the borrower to have sufficient equity in the first property to avoid mortgage insurance. We strongly advise the need to take a conservative approach as the qualification criteria is different for these types of loans than normal home loans.

The danger with both bridging and changeover loans is that your original property may take longer to sell than was expected. This would then put borrowers under increased financial pressure to sell at a reduced price additionally the longer it takes to sell the greater the interest cost. As a result many lenders require a special condition in the loan, that the original property has to have been sold but that there are differing settlement dates resulting in the need to "bridge the difference'". These lenders severely restrict borrowers from maximising potential profit in their original property.

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