Sunday, June 23, 2024

All You Need to Know About Bridging Loans

Using bridging loans is a great way for borrowers to get the financing that they need, even when there is a gap between when they owe money for a debt and will have credit available. Rather than missing out on an investment opportunity or the home of your dreams, when you use a bridging loan you will be able to get the financing necessary.

What is a bridging loan?

These loans are called bridging loans because they “bridge the gap” between selling property and purchasing new property. They are a short-term loan that can be used to facilitate a transaction by ensuring that the borrower has the necessary funds before they are able to sell their home. Many banks, mortgage brokers, and specialist lenders like The Bridging Loan Company provide bridging loans to potential borrowers. Make sure to always compare the offers and take into account the terms of the loan.

Who should use a bridging loan?

Designed for people who are going to be buying property, these loans are marketed towards investors and landlords. They can be used for:

  • Property development
  • Buy to let property
  • Investment purchases
  • Home purchases

These short-term loans are designed to allow a borrower to secure a purchase, even though they haven’t yet sold their current piece of property. They can also be used by a borrower who is interested in quickly selling their new property after they buy and renovate it, or a borrower who will be purchasing a home at auction and does not have the necessary time to get a traditional mortgage in place.

What are the interest rates for bridging loans?

It is possible to get both variable and fixed interest rates on a bridging loan. When you have a fixed rate, that means that the rate will stay the same for the life of the loan, ensuring that the monthly payment doesn’t change. Variable rate bridging loans will have a rate that may change, and this can make the monthly payment increase or decrease.

What are the types of bridging loans?

The two types of bridging loans are open and closed loans.

Open loans do not have a fixed date of when the money will be repaid. This gives borrowers a little bit more flexibility, and these loans will generally be used when the borrower needs to settle a transaction quickly. Borrowers can use an open bridge loan to buy new property before they sell their current home or to purchase property for renovation.

Closed loans are used when the borrower knows for sure when they will have the necessary funds to payback the loan before the end of the loan’s term, and they will have a fixed date in place for repayment. This is ideal for a borrower who has signed contracts for a purchase and sale but needs to wait until the transfers are complete to be able to repay their loan.

While some people tend to shy away from bridging loans because they have higher rates of interest and can be a little bit more expensive than other types of loans, when used correctly they are a great way for borrowers to get the money they need right away. They are very flexible and can be used by those who need to move quickly to buy property, or by those who simply haven’t had time to get another type of funding in place.

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