What is a bridging loan? A bridging loan is a kind of loan which permits you to purchase one property before another property has actually been sold and the equity released.A Bridging loan does specifically what it says, a bridging loan serves as a bridge between two financial transactions.You’re selling your home and buying another residence at the same time.Your vendor is all ready to complete the sale, but your buyer is not ready, or has dropped out of the purchase.The vendor has just said that he is going to be accepting someone else’s offer unless you manage to complete by a specified date.You cannot afford to do that without the proceeds from the sale of your residence.The amount which is borrowed with a bridging loan is viewed as a temporary loan up until your existing home is finally sold, the lender anticipates that the bridging loan will be paid back with the sale profits, and expects this to be within six months to twelve months.During this time period you may not have to make payments to the loan, as usually bridging loan providers are happy to add the interest that you accumulate during this time period to the balance which you have borrowed, you then repay the original balance and the interest in a single payment as soon as your residential property is sold.
How Does A Bridging Loan Work?
With an open bridging loan there is no fixed repayment date, but usually you will be expected to pay the loan off within 1 year. With a closed loan there is a fixed repayment date, you usually will be given a closed bridging loan if you’ve already exchanged contracts but are awaiting a property sale to finish.Whichever kind of bridging loan you choose to take out, the lender will wish to see proof of a method of payment; such as taking out a mortgage or using equity from an asset sale.Also they will wish to see proof of the new asset which you’re purchasing and the price which you plan to pay for it, as well as evidence of exactly what you’re undertaking to be able to sell your current property if relevant.Likewise you must have worked out a back up strategy for if your technique for payment fails, for example, if sale falls through for some reason.
What Can They Be Used For?
Bridging loans can be used to help fund anything :
• Second home, purchase of a vacation residence either in the United Kingdom or abroad.
• Buy to Let, unlock financing to allow you to broaden your property profile.
• Personal. There exists a lot of other reasons for obtaining a bridging loan that include repairing your credit score, wedding celebrations, vacations and so on.
• Renovations/extensions, upgrades to your home or to construct that extension you have always dreamed of.
• Business, your company may require a short of short term money or updating of business premises.
• Car, you could want to use your homes equity for a car acquisition.
• Tax, you may have tax payments to urgently make.
Bridging loans will be subject to interest just like any kind of loan.The interest rate with a bridging loan will be higher than with a long-term loan, which is why bridging loans are purely short-term options.You also will be charged an arrangement fee to cover the administration costs.Be aware that legal charges will also be payable, and there will be a necessary valuation on the property used as equity which could additionally be subject to a fee.Fees will be plainly clarified to the customer at the point of actually obtaining the loan.