Your Guide to Bridging Loans

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When it comes to buying and leasing property, you will have numerous questions. You may feel a little in the dark when considering your options, which will be best for you, and even where to start in the sea of information, misinformation, advice, and warnings.

Navigating your way through the financing process can be tough going and alienating. So, this guide has been formulated to try and help you piece together your options and try and straighten some things out for you.

The clue is in the name

A bridging loan is essentially a short-term loan that bridges the gap between the money you actually have and the money you need to buy a property in full. They allow individuals to purchase a property before their own home sells by offering short-term access to large amounts of money that often come with a very high rate of interest. They give you access to a large amount of money while you patiently wait for the sale of your residential or commercial property.

Lenders

Bridging lenders have grown in popularity more recently, and are increasingly being used by buyers to finance property due to the fact that banks and building societies have become more reluctant to lend owning undoubtedly due to the financial crisis and related concern. With this said, interest rates with these types of loans can be shockingly high, so it’s a good decision to do your homework, compare rates and companies, and be extremely considered in your approach.

Always choose a lender that’s right for your financial situation, and carefully plan for extra costs, emergencies, and just how much interest you’ll be required to pay.

Be aware

Bridging loans can be absolutely necessary for those who find themselves in tricky situations with the late sale of a property, but taking out loans such as these should be approached with caution, as aforementioned. The interest rates are high, and administrative fees can also apply.

These loans are designed to be extremely short-term, so if you don’t think you’re going to be able to make the large and regular payments to give back the value of the loan soon, then you might want to consider other options available to you.

What are the interest rates on bridging loans?

The time from borrowing the money to repaying it back is typically only over the course of a few months, and you can pay the interest back in a number of ways, and these include:

  • On a monthly basis: You’d pay back the loan amount in full and then repay the interest back separately over the course of a few months.
  • In a rolled-up deal.
  • And what’s known as ‘retained interest,’ which entails paying back the full interest rate in one payment when you’re able to, so, later down the line. The interest is retained until you can afford to clear your debts completely.

Now you’re a little more versed on the topic of bridging loans, proceed with caution, do your homework to secure the best loan you can find, and one that benefits you most appropriately.

 

 

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