As a FIFO worker in Western Australia, you're probably familiar with the unique challenges that come with your work schedule. One challenge that often catches FIFO workers off guard is the property market timing when you want to upgrade your home. Should you buy or sell first? What happens if you find the perfect property but haven't sold your current one yet?
This is where bridging finance becomes a valuable tool for FIFO workers who want to purchase a new home before selling their existing property.
What is Bridging Finance?
Bridging finance is essentially a short-term loan that helps bridge the gap between buying a new property and selling your current one. These loans typically run for 6 to 12 months, giving you enough time to sell your existing property. If you're building a new home, the loan term can extend to 12 months to accommodate construction timeframes.
The way it works is relatively straightforward. You borrow against the equity in your current home to fund the purchase of your new property. This means you can secure that dream home in Perth or wherever you're looking to buy, without the pressure of having to sell first in what can sometimes be an unpredictable local property market.
Understanding Peak Debt and End Debt
When you take out a bridging loan, you'll encounter two key terms:
• Peak Debt: This is the maximum amount you'll owe, which includes your new home loan plus the bridging finance
• End Debt: This is what you'll owe after selling your existing property and paying off the bridging component
For example, if the contract purchase price of your new home is $600,000 and you still owe $200,000 on your current property, your Peak Debt might be $800,000. Once you sell your existing home for $500,000, your End Debt would be around $300,000 (plus any capitalised interest and costs).
Ready to get started?
Book a chat with a Finance & Mortgage Broker at FIFO Home Loans today.
Bridging Loan Options and Interest Rates
FIFO Home Loans can access bridging loan options from banks and lenders across Australia, which means we can find solutions that work with your unique employment situation. Most lenders offer both variable interest rate and fixed interest rate options, though variable loan rates are more common for bridging finance.
The interest rate on bridging loans is typically higher than standard home loans because they're considered short-term loans with higher risk. However, many lenders offer interest rate discounts if you're taking out your ongoing home loan with them as well.
Interest Capitalisation: Managing Your Repayments
One of the practical features of bridging finance is interest capitalisation. This means you don't have to make monthly repayments on the bridging component - instead, the interest gets added to your loan balance. This is particularly helpful for FIFO workers who might have irregular income patterns or want to maintain cash flow while managing two properties.
When calculating bridging loan repayments, you'll typically only pay:
• Principal and interest on your new home loan
• Interest capitalisation on the bridging component (no monthly payments required)
The Application Process for FIFO Workers
Applying for a bridging loan follows a streamlined application process, but as a FIFO worker, you'll want to ensure your documentation clearly shows your employment stability and income. The loan application will require:
• Recent bank statements
• FIFO employment contract or letter
• Property valuations for both properties
• Details of your current financial situation
Most lenders will assess your borrowing capacity based on your ability to service the Peak Debt, even though this is temporary. They'll also look at your loan to value ratio (LVR) across both properties.
Getting Pre-Approved for Your Bridge
It's worth getting pre-approved for bridging finance before you start seriously looking at new properties. Loan pre-approval gives you confidence about your borrowing capacity and can make your offer more attractive to vendors, especially in competitive markets.
The pre-approval process will also help you understand whether you'll need to pay lenders mortgage insurance (LMI) based on your overall LVR.
Managing Stamp Duty and Costs
Don't forget to factor in stamp duty for your new property purchase. In Western Australia, stamp duty can be a significant cost, and you'll need to have funds available to cover this upfront. Some borrowers choose to include these costs in their bridging loan amount, though this will increase your Peak Debt.
Investment Property Considerations
If you're planning to keep your current property as an investment after purchasing your new home, bridging finance can still work. However, the structure might be different, potentially involving both a home loan for your new property and an investment loan for your existing one. An offset account can help manage interest costs across both loans.
Making the Right Choice for Your Situation
Bridging finance isn't right for everyone, but for FIFO workers who have found their ideal property and have sufficient equity in their current home, it can provide the flexibility needed to move without the stress of timing two transactions perfectly.
The key is working with a mortgage broker who understands the FIFO industry and can access a wide range of lenders to find bridging loan options that suit your specific circumstances.
Call one of our team or book an appointment at a time that works for you - we understand the challenges of FIFO schedules and can work around your roster to help you secure the bridging finance you need.
