Bridging loans are a type of interest-only loan. This means that you only repay the interest on the loan each month. And you don't have to pay the amount you borrowed until the end of the loan term. They often come with relatively low interest rates.
No monthly payments: bridge loans don't usually have monthly payments for the first few months. This makes the whole moving process much easier because the homeowner doesn't have to worry about two monthly payments on top of moving expenses.
You could also take out a second charge commercial bridging loan against an existing residential property in your portfolio, to raise the deposit to purchase a new property. In order to pay off your bridging loan, you could then choose to refinance onto a Buy to Let Secured loan, or you could choose to Remortgage.
A bridging loan is typically an additional loan – one you take out on top of your existing home loan. This means during the “bridging period” while you're trying to sell your old property, you have two loans and are generally being charged interest on both of them.
Interest on bridging loans is more than the interest on our standard term loans. You'll have the extra cost and stress of having to repay two mortgages at once. It may force you into selling your original property at a lower price if you need the money to meet your loan payments.
Bridging lenders are more open to properties in a poor state of repair, and they can act incredibly quickly. The loan terms can be as short as three months or up to a maximum of 18 months.
Perhaps the biggest risk of a bridge loan is that if your home doesn't sell by the time you need to begin repaying your bridge loan, you're still responsible for the debt. Until your old home sells, you'll essentially be paying three loans: the two mortgages on the houses and then also the bridge loan.
Bridging loans are most definitely a good short term option used to facilitate something else happening. They are mainly used to raise short term capital quickly, when it is not available through conventional borrowing.
Expect to pay 1.5% to 3% of the loan amount in closing costs for a bridge loan. Additionally, bridge loan rates can be as high as 8% to 10%, depending on your loan amount and credit profile.
Does a bridging loan affect your credit score? A bridging loan can affect your credit score. However lenders are not primarily concerned with credit scores but will run credit rating checks on their applicants. If you are unsuccessful in applying for a bridging loan, then this will show on your credit file.
Financial transactions involving property usually require a solicitor to carry out the legal work. Solicitors play a vital role in bridging finance transactions so it's very helpful, particularly where you require a speedy completion, that you have a solicitor who is experienced in this area.
A bridging loan, unlike a mortgage, is not directly linked to your income. The bridging loan is repaid either by the sale of the property or by raising finance through a traditional mortgage route.
While a bridging loan can be arranged quicker than a mortgage, it can still take anything from a few days to several weeks to complete. This is because it's a secured loan, and if you're using your property as collateral, a valuation is usually needed, as well as credit checks.
You need the equity: There is no hard and fast rule but it's recommended you have more than 50% in equity to make the bridging loan worthwhile.
Bridging loan calculator explained
It is calculated by adding the Net Loan Amount and the interest. This number will change depending on term length and if the interested is paid monthly or rolled up. Term – This is the number of months you need the money for.
A bridging loan is a short-term secured loan, usually with a repayment term of between 6-24 months. Typically offered by smaller, more nimble lenders, bridging loans offer a faster way to access finance without having to deal with the long waiting times and layers of bureaucracy associated with institutional lenders.
Melanie Bien at mortgage broker Private Finance says bridging finance has its uses, but adds that if you don't have a realistic exit strategy, such as a buyer lined up for your own property, "bridging is extremely risky and should be avoided at all costs".
Bridge loans are also great for real estate investors who need to take out a short-term loan for renovation or repair the property before it is ready to be sold. You need a good credit score of at least 700 and a steady income to qualify for this type of loan.
Can you have two mortgages? Anyone can have two mortgages if they qualify and can meet your lender's income or collateral standards. However, just because you can afford to two mortgages, that does not always mean you should. Before making this big decision, be sure to talk to a mortgage specialist.
The differences between mortgages on primary residences and second homes. On your primary mortgage, you might be able to put as little as 5% down, depending on your credit score and other factors. On a second home, however, you will likely need to put down at least 10%.
Generally, a 15% deposit is enough to secure a mortgage for a second property. However, if you have a larger deposit, you'll not only find it easier to take out a mortgage as you'll have more to choose from, you'll also have access to better rates and possibly be able to have the mortgage on an interest-only basis.
To qualify for a bridge loan your lender will look at standard credentials like your debt-to-income ratio, how much home equity you have, your credit card score and possibly your household income. It helps if you've been a good mortgage candidate with your first home.
A bridging loan works by giving you the money to proceed with a purchase while you free up money from other assets / investments or secure a long-term finance plan, such as a buy-to-let mortgage. They're a handy way to access short-term cash injection, while you put a more sustainable plan in place or liquidise assets.