There are numerous instances where a bridge loan makes sense. For example, a land bridging loan can help you buy or develop land. Similarly, bridging finance can help you acquire a new property while still in possession of your current one. Here is an in-depth analysis of bridge loans and why particular people can benefit.
How Many Types Of Bridging Loans Are There?
The most popular forms of bridging loans are open and closed.
Closed Bridging Loans
You can expect to pay based on your loan term if you go in for a closed bridging loan. These loans have fixed repayment dates that are agreed upon in contracts. You will likely get a closed bridging loan while awaiting the purchase of your property after swapping contracts.
Open Bridging Loans
An open bridging loan lacks a specific repayment date, but your lender will expect you to repay within twelve months. In addition, you will likely have to show some proof of a reliable payment strategy to your lender, like selling equity from your property or taking out your mortgage. Furthermore, you must offer proof of the property you are buying and how much you are willing to acquire it for. Last but not least, you may also need to reveal your strategies to find buyers for your present property if necessary.
First And Second Charge Bridging Loans
Your property will receive a charge (after a thorough property assessment is carried out) if you go in for a bridge loan. This charge is a binding deal that outlines which lenders will get their money back first if you can’t repay.
If you default on your payments, your property will be taken as collateral for a first and second charge bridging loan. Your bridging loan also becomes a second charge loan if your property still has a mortgage. Therefore, you will pay your mortgage before the loan if you miss payments and have to sell your property to repay. However, if residential bridging finance was assisting you with your mortgage payment, you will receive a first charge bridge loan. Consequently, you will repay the bridge loan before other debts if you falter with your payments.
Bridging Loan Charges
Bridge loans are usually priced per month instead of annually because they are taken out for a short period. Still, you can pay a lot in up to 1.5% monthly costs, making them more costly than many mortgages. You may also need to pay set-up fees of about 2% of your loan, so it is best to go in for these loans for the short-term only.
Bridging Loan Borrowing
Getting a first charge loan allows you to borrow more than a second-charge one.
Other Alternatives
You can enter into a let-to-buy mortgage deal if you want to move without selling your property. All you have to do is remortgage your current property and use the equity you free up to get a new one.
