by: John Mussi
A bridging loan as the name implies is a loan used to “bridge” the financial gap between monies required for your new property completion prior to your existing property having been sold.
Bridging loans are short term loans arranged when you need to purchase a house but are unable to arrange the mortgage for some reason, such as there is a delay in selling your existing property. Timing is of the essence when selling one property and buying another. Sometimes if you are looking for a new home and the right property becomes available, it is not always possible to wait until your current home is sold.
The beauty of bridging loans is that a bridging loan can be used to cover the financial gap when buying one property before the existing one is sold. For example, if you are in a chain, where you are buying a property at the same time as selling a property, it's possible that you'll be put in the situation where you need to complete your purchase, but the funds from your buyer are not available. You are now under pressure to complete on a particular date but do not have the funds available. This is where bridging loans come in. They are looked on as short term lending to cover a specific short term need.
A bridging loan can also be used to raise capital pending the sale of a property.
Bridging loans can be arranged for any sum between £25000 to a few million pounds and can be borrowed for periods from a week to up to six months. Because of the nature of bridging loans they can usually be arranged at short notice and within a few days.
A bridging loan is similar to a mortgage where the amount borrowed is secured on your home but the advantage of a mortgage is that it attracts a much lower interest rate. While bridging loans are convenient the interest rates can be very high. When considering a bridging loan please remember that you may be paying not only for the bridging loan but also for the mortgage on your existing property.
Bridging loans are widely available and can usually be arranged by your existing mortgage provider.
Although bridging loans are convenient, you need to consider the pitfalls too, like the high interest rates.
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