If you have ever heard of bridging loan somewhere, then it is a usual term for those who have ever been involved in purchasing the property. The loan offers you the opportunity to purchase a new or another property before your current property goes to the market. People prefer the loan for various reasons may be waiting for the property market to improve or still maintain a place to stay before your new property is ready for you to move in.
Highlights of bridging loans
This type of loan is entirely different from the standard loan as it is a type of short-term property backed finance availed for property financing purposes only. The loan is usually offered for a period of 1-18 months thus allowing you to either refinance to a longer-term loan or until you sell your current property. The full payment of the loan happens at the end of the month but you will be paying monthly interest on the loan from the time of application. The basis of the loan is calculated from the equity of your current property.
Once your current property y or home is sold out by the agents, your bridging loan is then converted to your intended home loan as per your new property which will be payable according to the terms of the loan. The interest of bridging loan is compounded monthly and this makes the loan to attract higher interest rates than other forms of loans. This means that if you take longer to sell your current property, you will accrue a higher interest. It is, therefore, necessary to honor the terms and sell your current property within the stipulated time at the agreement.
It is also very important to consider the bridging term which is usually from 6 months when buying an existing property from various structures to 12 months when buying a property that you seek to purchase. Lenders of the loan might increase the interest rates if you fail to sell your current property within the time frame given. You can obtain a bridging loan within 14 days from the time of application which is usually a good option when you need the funds within the shortest time possible.
Bridging loan offers you a good chance to raise the capital you need for your home when you are going through tight cash flow period as long as you have the asset property which you will sell to repay the loan. Even the bridging loan has never been cheaper, the bridging market is experiencing high competition which is forcing the industry to reduce the interest rates where you can now obtain a bridging from as little as 0.37% per month. As with any financial obligation, you need to consult the real estate experts so that you may get the idea and make the right decision depending on the market value of your current property.