The two primary types of bridging loans are closed and open bridging loans, which are defined by their repayment structure. Closed bridging loans have a fixed repayment date, often used when a property sale is secured. Open bridging loans offer no fixed deadline (usually due within a year), providing flexibility but generally at higher costs.
Broadly, a regulated bridging loan is a loan secured against a property which the borrower currently occupies or intends to. The main difference between this and an unregulated bridging loan is that the transaction is not intended for business purposes.
It is usually called a bridging loan in the United Kingdom, also known as a "caveat loan," and also known in some applications as a swing loan. In South African usage, the term bridging finance is more common.
You'll need to pay closing costs: Closing costs on a bridge loan may include home appraisal and origination fees, which can total up to 3% of the loan amount. You'll have to manage multiple payments: Since you'll own two houses at once, managing two mortgage payments, even temporarily, can be challenging.
A client is purchasing a £600,000 investment property at auction, which needs refurbishment. They must raise property auction finance £300,000 to complete the purchase. This will be secured using a 1st legal charge over the new property and is needed for 6 months.
The most notable bridging loan cons are: Higher borrowing costs: Bridging loans are quick and convenient finance arrangements, so lenders charge accordingly. Interest rates tend to be high in comparison to other funding options.
Traditional Mortgages
If your circumstances allow, a traditional mortgage can be one of the most cost-effective ways to borrow for a property. These mortgages are typically used for long-term purchases and come with lower interest rates compared to short-term finance options.
Typically, closing costs range from 2% to 5% of the home's purchase price. So if you're buying a $300,000 home, your closing costs could fall anywhere between $6,000 and $15,000.
HELOCs typically have lower interest rates than bridge loans, which can translate to significant savings. They also offer longer repayment terms (20-30 years), giving you more time to repay the borrowed amount. Like bridge loans, HELOCs use your home's equity as collateral.
There are no monthly repayments on Together Personal Bridging loans so you won't end up paying for two mortgages at the same time. Instead, interest is charged monthly and 'rolled up' to be repaid in a lump sum, with the initial loan and any fees and charges.
What are the costs involved with bridge financing? As with any very short-term loan, you'll pay a higher interest rate for this interim loan (typically prime + 3% to 5%), and there's usually a bridge loan fee; there may be added admin fees to cover with the lender or lawyer (help from your True North broker is free).
A bridging loan is a short-term loan (between 6 and 12 months) that enables you to purchase a new property while you are waiting for the sale of your existing property so you can take your time to get the best deal on both transactions.
While loans have many categories, the three fundamental types often distinguished by purpose and security are Personal Loans (flexible, often unsecured), Mortgages (for property, secured by the home), and Auto Loans (for vehicles, secured by the car), with other common types including Student Loans, Business Loans, and Home Equity Loans. Loans are also categorized by structure (secured vs. unsecured, open-ended/credit line vs. closed-ended/installment) or term (short, intermediate, long).
No, you can't. A bridging loan, by its nature, is secured by the asset it is being used to pay for or support. While they don't always need to be used to purchase large assets, for example, they can be used to renovate a property instead, they are always secured.
Typically, the bridge financing is designed to be interest-only with no prepayment penalty, aligning with the expectation of early payoff once the property is sold or refinanced.
The bottom line. A bridge loan or a HELOC can be helpful if you are buying a new home and selling your current one at the same time. The main difference is that a bridge loan has a much shorter term, while a HELOC can be a more long-term solution.
How much deposit is typically required? While every lender has its own rules, the broad expectation is that borrowers will cover at least 20–40% of the property's value, or sometimes more, with their own funds. For example, you'll usually need a 20–40% deposit for a bridging loan, although requirements can vary.
A $500,000 mortgage costs roughly $3,000 to $3,400 per month for just principal & interest, depending heavily on the interest rate (e.g., ~6.25% = ~$3,079) and loan term (30-year vs. 15-year), but the total monthly payment will be significantly higher, adding hundreds (or more) for property taxes, homeowners insurance, and potential PMI or HOA fees. A 30-year fixed loan at a 7.1% rate might be around $3,360 (P&I), while a 15-year loan at 5.41% could be $4,060 (P&I).
Understanding Interest Rates and Fees
Bridge loans tend to have higher interest rates than traditional mortgages, depending on your credit profile. Carefully review the loan terms, which include not just interest rates but also origination fees and any potential prepayment penalties.