Bridging loans are used to provide the financial support that is needed when buying a property, indicating that the loan “bridges the gap” between selling one property and purchasing another.
When you use a bridging loan, you avoid missing any investment opportunities that would otherwise fall beyond your budget and you are more capable of purchasing a home that meets your desired specifications.
1. What Is A Bridging Loan?
A bridging loan is a short-term loan which is usually used to facilitate a transaction by providing the borrower with a sufficient amount of money and enabling them to follow through with the purchase process.
This lending structure has been designed and created with property buyers in mind and is marketed towards both investors and landlords. Loans as such are usually used in the cases of property development, buy-to-let investments or purchasing a home.
2. How Do They Work?
Using the bridging loan finance scheme, the borrowers are put in a financially stable zone which allows them to purchase a new property, without having to depend on the income of the house that they are currently selling. In addition to this, they are also used by those who attend home auctions and therefore do not have a suitable amount of time to organise a traditional mortgage.
Interest rates for bridging loans are available as both fixed and variable. A fixed rate indicates that throughout the entire lifetime of the loan, the rates will not fluctuate. On the other hand, a variable rate would mean that the rate may change, which could either make the monthly rate increase or decrease.
3. Types Of Bridging Loans
You can choose between an open bridging loan or a closed bridging loan. Open loans do not have a fixed date of when the repayment is due, allowing more flexibility for the borrowers and are commonly used in order to settle a transaction as quick as possible.
Closed loans are beneficial if the borrower has signed the purchase contract but needs to wait for the transfer to be complete in order to pay off their loan. With this method, the borrower is certain of when the repayment is due.
4. How To Use One To Your Advantage
Bridging loans have a reputation of consisting of higher interest rates and are slightly more expensive than your average loan. However, if they are used in the correct manner, their flexibility and efficiency make them an ideal solution for anyone who is looking to take out a loan quickly and simply.