When applying for a loan, particularly a bridging loan or mortgage, having a clear exit strategy is essential. An exit strategy outlines how you plan to repay the loan or transition to a different financing solution. In this blog, we will explore five types of exit strategies to consider, ensuring you make informed decisions that align with your financial goals.
One of the most common exit strategies for both bridging loans and mortgages is the sale of property. This strategy involves selling the property that was purchased with the loan funds. It is particularly relevant for borrowers who have taken out a bridging loan to purchase a new home before selling their current one.
Refinancing involves replacing your current loan with a new one, typically with more favourable terms. This strategy can be used for both bridging loans and mortgages.
For borrowers who have business or investment income, using these funds to repay a loan can be an effective exit strategy. This is particularly relevant for investors who have taken out a bridging loan for a property development project.
Using cash reserves as an exit strategy involves setting aside funds specifically for repaying the loan. This strategy is suitable for borrowers who have significant savings or liquid assets.
If selling the property is not an option, consider selling other assets to repay the loan. This could include stocks, bonds, or other real estate holdings.
Consider Sarah, a homeowner in Sydney who wants to purchase her dream home but hasn’t sold her current property yet. She opts for a bridging loan to secure the new property while her current home is on the market. Sarah’s exit strategy is to sell her existing home to repay the bridging loan.
After three months, Sarah successfully sells her current home at a favourable price. The proceeds from the sale are used to repay the bridging loan, and she transitions to a standard mortgage for her new property. By having a clear exit strategy in place, Sarah was able to navigate the transition smoothly without financial stress.
Choosing the right exit strategy when applying for a loan is crucial for financial stability and success. Whether it’s selling property, refinancing, utilising business or investment income, using cash reserves, or selling other assets, each strategy has its benefits and considerations. By understanding these options, you can make informed decisions that align with your financial goals and circumstances.
For more information on bridging loans and how they can help you achieve your property goals, visit Funding’s Bridging Loans page.
DISCLAIMER: The information provided on this page is for general informational and educational purposes only and is never intended as financial advice. While we strive to ensure that the content is accurate and up-to-date, it may not reflect the most current legal or financial developments. Always consult with a qualified financial advisor or professional before making any financial decisions. Use the information at your own risk.
