Bridging loan, construction loan & equity loan.
Many people refinance their home loan because they’re looking for a lower interest rate, lower payments or more flexibility (as talked about here http://keyfinance.com.au/6-reasons-why-you-should-love-refinancing). If that is your goal in refinancing, then you have a wide range of products to choose from. However here we look at some specific mortgage refinancing options people use to deal with some common situations.
- Bridging loan
- Construction loan
- Equity loan or line of credit (LOC)
- All in one account
If you want to buy a new home, but you have not yet sold your existing home, you could use a bridging loan to tide you over. The maximum you will be allowed to borrow during the bridging period is generally limited to 80% of the combined value of both properties. Bridging loans tend to be at a higher interest rate than normal loans. But when you have sold your original home and repaid that mortgage, you can revert to a loan product with a more favourable rate.
Construction loan or renovation loan
With a normal loan, you borrow the whole amount up front – and start paying interest from day one. The advantage of a construction loan or renovation loan is that you only draw down money as you need it to make progress payments. This can significantly reduce your interest payments.