Type of Client: PAYG and Self-Employed
Type of Loan: Owner Occupier Loan
Success Factors
Provided education about the impact on repayments based on loan amount and how the mechanics of a bridging loan worked – peak debt vs. end debt, servicing during bridging period, bridging interest rate and establishment fees.
- First pre-approval was in 2 years ago
- Family looking to upsize home by selling current property
- Debt averse – did not want to borrow too much so repayments are lower
- Both applicants working, one was self employed and the other was PAYG
Situation
A happy household of 5, the family was looking to upsize their family home and move into the leafy Hills District. Having worked and saved hard, our clients had enough for the initial 10% deposit but the rest was locked in their current home. They had 3 young children so regardless of if they had to sell first or settle simultaneously, both would represent a logistical challenge.
Upon returning for pre-approval the market had changed dramatically in terms of policy and product environment.
Client was already active in the market and needed a quick turnaround to avoid missing out on property.
Deciding on the most effective loan application strategy given the current property was a live listing but the new property was not yet found.
Existing property was mortgaged to lender that did not meet their needs for new property
Upon finding the new property the existing property was not yet sold.
A bridging loan would be a safety net in case the existing property could not settle simultaneously – settling prior would not be a practical option as household was a family of 5 with 3 kids.
Lender policy had a limit of one pre approval per proposed policy – application had to be either bridging or not.
Before they had listed their current home for sale our client found their dream home – a 5 bedroom, 2 bathroom house on a 700-square metre block of land in Kellyville. This was an opportunity they could not miss so they immediately listed their home for sale. They made a strong winning offer, waived the cooling off period and with that the 6 week window to sell and settle began.
Challenges
Our client advised they had a few active offers and was confident a contract would be signed shortly.
On this basis, to save the client additional fees and bridging period interest rate we obtained a standard pre approval.
The client found new property a few days later but at the same time the active offers for existing property all fell through.
Therefore we activated the ultimate safety measure of a bridging loan and converted the standard pre approval to bridging loan.
This was all done in time to achieve Formal Approval within the 5 day cooling off period and a 7 week settlement began ticking for the new property.
Since our clients were now using a bridging loan, the current property needed to be refinanced to the new lender first. Once the new property is found the current one is discharged simultaneously to the settlement of the new property.
Generally a total of 4 weeks is needed for this component as we were going through two discharge processes. This means the new property’s settlement date needed to be at least 2 weeks after the refinancing of the current property to the new lender was complete
The client received an irresistible offer for their current property but the required settlement of the buyers was only 1 week prior to the settlement of the new property.
This meant we had to get the current property refinanced AND discharged from the new lender all within 1 week, a mammoth task for a large bank.
Personally visited client in home to sign documents – returned to bank next day via hand delivery to bank certification centre.
Result
At the time of purchasing the new property our client had a standard pre-approval. As it seemed unlikely for their current property to sell and settle all within 6 weeks it was agreed that a bridging loan would represent the safest option.
Even if the property did sell simultaneously or beforehand a bridging loan would allow the option of moving at their own pace, rather all within the one day which can be very stressful for a family of 5 including 2 busy working parents.
However this needed to be balanced with the cost of bridging as during the bridging period (which is when they hold both properties) they are paying interest on a large loan amount at a high rate.
With the client’s best interests in mind we aimed to have a 1 week bridge period which meant within 1 week the current property would be refinanced to the new lender, the new property would be funded and then the current property would be discharged and new loan paid down to the desired end loan amount. This was a big ask as it normally takes 2 weeks just to discharge 1x property!
In the end we did exactly as we promised and managed to bridge their home for 1 week plus settle the new home so the family could peacefully moving to their new home without a hefty interest bill!
