We had a client looking to move a bigger home. They wanted to buy before they sold and they did not know how much debt they would be ultimately left with. They also needed some sense of security when it came to the new repayments.
We delivered a three pronged solution which addressed each of these needs. Bridging finance, a large offset home loan and a component fixed long term.
Three componants to make the move easy;
- Timing
- Flexibility
- Security
Timing
When it came to timing, these clients required the ability to buy the new home before having sold their existing home. This is where bridging finance came in. It did mean that temporarily(before they sold) they would have two mortgage repayments. For this reason the bridging part was done on an interest only basis. We ensured that the loan approved had left them with savings to enable some buffer during this period.
We also mitigated the possible downside risk of a lower sale price and higher buy price. By ensuring the loan approval used the most pessimistic of these numbers. Bridging finance can have a hard end date by which time the clients property must be sold. We enabled some room here by taking six months even though the client was adamant the property would be sold in two months.
Flexibility
There was also a possibility that a much positive outcome was reached in terms of the sale price of the clients own home. Leaving them with excess cash. For this reason we structured a decent portion of the home loan as an home set home loan. This means any residual funds after paying down the bridging loan can be placed against the main home loan, reducing the interest costs. While still retaining the ability to use these funds in the future.
Security
Even though the clients were unsure of the actual amount that would remain after the sale of their home, they were concerned about changes in interest rates. For this reason we fixed a part of the total lending long term. This future proofed their cashflow by reducing the amount of impact of future rate movements.
