You’re about to move house but buying a new, larger house is a challenge?
Don’t worry, it’s actually very common to have difficulties when securing a funding for purchasing a more luxurious home at a better location.
The financial gap when buying a new house is often big enough that visiting a bank is the only option to fill it.
Bridging loans are designed to help people at this stage of their life. Mind that this type of short-term loan is not to be underestimated. If not planned carefully, a bridging loan may bring a minor or not so insignificant financial catastrophe to a household.
We’re about to unveil the pitfalls of moving your home with a bridging loan so you consider this step in your life with greater care, as well as to learn how to calculate the impact of the loan on your own budget.
What Is a Bridging Loan and How Does it Relate to You Moving?
A bridge loan is usually a short-term loan that is paid in a period of 2 weeks to 3 years on average. In some countries, it is also known as a “swing loan”. People usually get this type of credit until they receive additional financing from another source.
A bridging loan is indeed handy for those who’re buying a new property and seek for a quick way of finding the money they don’t yet possess to make a new property purchase.
On the negative side, getting a bridging loan is something you should consider with great care as it’s definitely a thing to look before you leap.
In this post, you will receive information on the most common downsides of bridging loans. Being informed will help you avoid the cons of moving house with a bridging loan while getting the most of this smart, short-term investment.
How knowledgeable are you when it comes to bridging loans? If you don’t feel confident enough, feel free to check out the frequently asked questions we receive about bridging loans.
Most Common Pitfalls of Bridging Loans
#1 Bridge Loans Are Meant to Be Temporary
Getting a short-term loan sounds like something positive as it provides a less legally binding method for securing some quick money but things are much more complicated than this.
Bridge loan lenders are familiar that most bridge loan borrowers are in a process of selling a property. This means that when loan borrowers get the money from their sale, they will try to pay their bridge loan as quickly as possible.
The only way for a bridge loans lender to earn a significant quick profit is to provide these short-term bridging loans at a much higher interest rate than a standard mortgage loan.
Failing to sell your old home on time increases the payment period of your bridging loan and with a high-interest rate, the short-term debt becomes a long-term problem to deal with.
In the worst scenario, the loan borrower ends up with a mortgage loan for their previous property, a new mortgage loan for the new house and a bridging loan to fill the gap at the moment of the second purchase.
For this reason, we highly recommend finding a decent buyer for your old home first before proceeding with any additional real estate manoeuvres.
#2 Qualifying for a Bridge Loan Is Never Guaranteed
The amount of your home equity is the primary factor when qualifying for a bridge loan. Simply said, this is the portion of the property that you actually own if you have borrowed money to buy it. Until fully paying your mortgage, your loan lender also has a partial interest in your property.
As long as you own at least 20% of home equity or more, you will have chances on your side to get approved for a bridge loan.
Complications occur when a home buyer owns more than one property because average home equity is to be calculated.
If your credit history is poor, there’s no cash in any of your bank accounts and the overall home equity you actually possess is insignificant, getting a bridge loan will be really hard.
Those who’re in this unfavourable group should reconsider opting in for a bridge loan and instead look for an alternative way to finance their next real estate purchase.
#3 Closing an Unprofitable Property Sale
Bridge loan burrowers aim at paying their debt as quick as possible. This whole bustle leads to making poor decisions, resulting in non-profitable deals. Many bridge loan burrowers actually sell their old homes on a little to no profit just to speed up the process of paying their bridge loan, especially at times when the UK house price growth is at its lowest rates for the last five years.
Failing to complete a property sale on time and securing the money from the deal may result in foreclosure of your new home.
Don’t forget – making timely payments on your mortgage and bridge loans is a must. Any difficulties to sustain prompt payments will cause loan lenders to take action.
#4 Late Payments Are Not an Option With Bridge Loans
Bridging loans, in general, have a high default rate because of their high-interest rate and the legal requirement for timely payments. Making late payments of a bridging loan results in regular fees and penalties from the lender. This complicates the payments even harder for the loan borrower.
For each month a bridge loan borrower doesn’t succeed to make a prompt payment, compound interest is generated. Failure to make repayments within the loan terms leads to a bridge loan default.
Ending up with a default on a bridging loan hurts your credit score, leaving you with a status that will make any further loans much harder to borrow. A poor credit history also affects the interest rate of any loans borrowed in future.
Make a great evaluation of your budget and the terms and conditions of the credit before getting legally obligated with a bridging loan. Failing to make regular payments may result in long-term debt that will downgrade your life standard for a long time.
A Bridging Loan Has Been Secured. What’s Next?
You’ve finally taken the decision to get a bridging loan and you’ve just been approved for one. The money has been transferred to your bank account but what’s next?
No worries, we asked the experts from Fantastic Man and Van Removals for the following procedures to help you ensure your smooth hassle-free house move.
- Hire a Professional Moving Company
A large-scale house move is impossible to complete without the help of trained and experienced professionals. Reputable move out companies will not just provide you with a high-quality service but they can do it at a competitive price and also inform you how to make the relocation process easier, providing all necessary assistance.
Ask about a moving insurance. Topnotch companies will always pay extra attention to your belongings and will do whatever it’s necessary to deliver them in perfect condition at the destination address. Companies like Fantastic Removals guarantee the safety of anything inside the moving boxes as long as it’s been packed by their professionals.
- Lower Your Moving Expenses
Cut down on moving cost by decluttering your home. When movers arrive at your home, they’ll need lots of free space to efficiently do their job. The faster they finish and leave, the less you will eventually pay for move out jobs are an hourly-based service.
Remove anything that may possibly interrupt packaging and moving process such as pets, distracting rare items etc, take the children out too. Clean hallways and corridors in your property and double check door locks. The removals team will need full access to the premises so they can pack and load everything.
- Defrost your Fridge Freezer / Refrigerator
You can save up to 48 hours of energy usage by unplugging and emptying the fridge on time. The move out experts will be able to load the fridge without having to deal with leaks and malfunction issues as longs as it’s been defrosted at least 24 hours in advance.
- Sell Everything You Don’t Need
You can start selling online for weeks or even months before relocating. A faster solution is to organise a garage sale with the items that no one at home will use anymore.
Group all of these items at one place and label each with a price. People living nearby will have plenty of time to take a closer look and decide if they want to purchase anything from your collection of secondhand items.
Whatever remains unsold, you can donate it to a local charity, just make sure they’ll cover the expenses of collecting it from your current address.
- Compare Move Out Companies
Before making the final decision to book your service, take a closer look at the service prices, provided by at least 3 different companies.
Each business uses a complex way of forming their services prices and some are more affordable at specific times. Our advice is to avoid the end of the week and the last 3 days of the month. It’s the time when moving companies schedules are busiest and prices reach their peak then.
Moving on a weekday at the middle of the month can be a hassle-free and pleasant experience.
Overall, bridging loans provide a very flexible way of funding your house move into a new home as long as you’re well informed about the pros and cons of this credit. A bridge loan is not to be underestimated but that doesn’t mean you should ignore it. Consult with professional loan lenders in your area and make the deal that looks most suitable for your long-term investment plans.