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Home » What is a bridging loan and how you can benefit from it?

What is a bridging loan and how you can benefit from it?

Anyone with knowledge of the mortgage industry would know that it could take several weeks to qualify for a mortgage for your home. What then can one do to take care of an immediate need for money when you are buying a brand new home and the current one isn’t yet sold? Although a conventional mortgage might be a viable option but it will take lenders a considerable amount of time to approve the loan, and by the date that your chosen property may not be offered for sale.

However, there are bridge loans to help. The majority of the time they are used to fund a purchase when the one you have already purchased is not yet sold. These loans provide the funds during this period of transition where buyers might encounter a financial crisis. However, it is important to keep in mind that bridge loans are only for a short time and are only intended to meet the need for funding between the dates of your property’s settlement.

What is a bridging credit?

A bridging loan lets you to purchase a new property while searching for buyers for your existing one. If you intend to make use of the proceeds from one property to purchase another, and you are still searching for buyers, bridging finance can assist in financing the purchase of the new home for a time period that is between.

What is the process for bridging loans?

In terms of technicality, the bridging loan is not that different from conventional loans, with the exception that they are of shorter durations and are interest-only.

The amount you can borrow is determined using the value that is market-valued of the new property to the loan for your home you currently have most likely the price at which you sell of your current property is then subtracted from that amount to determine the ongoing balance , or the amount at the end of the loan which is the principal sum of the bridge loan.

This means you need to have substantial equity (at at least 50 percent) in your residence prior to applying for an bridge loan.

How are repayments determined?

During the duration of the loan the lender secures both properties in relation to one single loan (outstanding mortgage on the home and current balance). In the meantime, you are making regular payments on the current mortgage, the lender calculates the interest rate on the highest debt for the bridging time frame and add it to your loan when the current property is transferred.

Apart from providing funds for short-term expenses it also has the benefit of paying off the loan you have already taken out during this period too. But, don’t ignore the fact that you have two loans that you must service, and it’s logical to pay some interest in that time to lower the total amount of debt.

Benefits of a bridge loans:

1. Buy a home without selling your current one.

2. The interest-only structure helps to simplify managing payments between settlement dates.

3. The costs associated with the rates for bridging loans are similar to traditional home loan rates, so that you won’t need to pay more.

4. Avoid the hassle and expense of moving twice and renting the house instead.

5. If you decide to sell your property at a higher price than the expected price, you can use the additional amount to reduce the mortgage amount at no additional cost.

The risks that come with them:

1. One of the most significant dangers is that the current property may not be sold in the time frame you signed up for. Many lenders will have higher interest rates over this extended period.

2. Another drawback could be the possibility that your home could be sold for less than you expected. To prevent this from happening, have an expert valuation instead of guessing at your property’s worth, which can result in an additional expense of having two valuations from a professional.

3. All lenders do not provide bridging loans. If you requirement to change lenders, the termination fee and other exit fees must be paid.

4. Minimum 20% of the maximum debt paid off over a minimum of three months is needed as a the deposit on your home loan for your bridge loan.

Do I require a loan to bridge the gap?

1. Selling and buying the property simultaneously – With the world not being ideal, there may be a gap between sale of your house and purchasing a brand new one. Bridging loans will meet your financial requirements in this situation if want to use the proceeds of sale from your existing property to fund an additional one.

2. Property development – Typically developers of property may need wait for weeks until they receive the funds to begin the planned development. This can mean that the property is held longer than needed before selling it. By using a bridging loan, you can access financing whenever you require to accelerate the growth of the property in order to make it the fastest sale.

3. The process of renovating uninhabitable buildings There is a possibility to spot the enormous potential of an uninhabitable property that you’d like to transform however getting lenders to accept your reasoning isn’t easy to overcome. Instead, consider no-questions-asked bridge loan to put the property ready to make a profit on the sale.

Bridging loans are perfect for those who require quick and flexible financing. They can be secured on any type of property and can take just a few hours to several days to complete. But it’s better to talk to an expert to know the possibilities better. For more information, talk with an expert broker to get fast resolutions to your questions online, at no cost.