A bridge loan is a short term loan that bridges the gap until pending finances from investors are available or funds from a property sale.
Bridging loans tend to have higher interest rates in comparison to long term loans and are traditionally used to help people purchase a new property before selling their existing home. However, there has been a growing among borrowers to use bridging loans because they are quickly available in comparison to the long applications processes implemented by high street lenders.
Types of Bridging Loans Include:
Closed Bridge
A closed bridging loan means that there is an exit strategy and guarantee in place. This is because long term funding has been secured either from property sales or mortgages.
Open Bridge
An open bridging loan is unsecured and there isn’t definite access to long term funding in place. Open bridge loans run for a set, specific amount of time from six months to much longer periods.
How Do Bridging Loans Work
Bridging loans can be sourced from some high street lenders and there are a number of bridging finance specialists. In some instances a bridging loan can be arranged within days, much faster than most conventional loans.
- Borrow up to and over 70% of a property’s value – If you have no other mortgage secured against your property you could borrow up to 75% against your property’s value although this is not guaranteed for everyone.
- Not all lenders look at income – Not all Bridging loan companies base their decisions on your income. If you cannot afford to pay for the monthly interest, some will allow you to deduct the full amount of interest from the gross loan advance. If you wish to service the monthly interest, your income and bank statements will be analysed to esnsure you can afford the payments.
In Conclusion
Bridging loans provide relief while you successfully sell your property or identify additional financing options. However, it is worth giving some serious thought on how you will repay the loan after the term, just in case things don’t go to plan.