Have you ever been in a situation wherein you have found your the perfect property and you know that this kind of opportunity is hard to come by? Chances are someone is also eyeing that particular property. If you want to secure your dream home, you need to act real fast. This is where bridging loans take its part. Whether you are looking or upgrading a property, a bridging finance can offer viable solutions to your financial needs and multiple mortgages.
Bridging Finance Defined
A bridging loan builds a bridge between the gap of securing a mortgage for a newly acquired property before a specific existing property is sold. It offers you a short term access to available funds with a slightly higher interest rate or just the standard rate, without any discount applied.
Your credit history is extremely valuable when you want to secure a bridging loan finance. However, you need to take note that there are a lot of factors that will be considered for your loan approval. These factors include the value of the property you currently own and the risk associated with the loan. Assessing these factors will take some time and will affect the duration of the approval of the loan.
Who Will Benefit from A Bridging Finance?
If you are looking forward to purchasing a new property before selling your existing property, then a bridging loan is the best option for you. There are some risks associated with this type of loan that’s why you should only consider a bridging finance. If you don’t have enough funding and security, you might pay far more in the bridging period than what you can actually can afford.
Most bridging loans go up to six and twelve months depending on the requirement. Usual terms, however, is the difference between the settlement of the purchase and the receipt of the sale property proceeds. A client can have a range as fast as 7 days or as long as 9 months.
After selling your property, the funds that will be collected are going to be used to pay for the bridging loan. Before the sale takes place, the minimum repayments will only include one interest. You will find it easier to pay off two mortgages, but you won’t be making a dent into your principal dent between the bridging loan period. In effect, you will be paying more interest in the coming months.
The best way that you can do to accumulate massive debt is to make repayments whenever possible. Paying off extra repayments ensure that you are paying on time without any accumulated extra interests. Aside from this, the amount added to the loan of your new property will be reduced by the amount you are constantly paying.
In some situations, the loan interest can be capitalized so your cash flow costs are deducted within the period. One reason that you need to find a licensed money lender is to avoid higher end debt than you first thought or had accounted for.
Advantages of a Bridging Finance
- Less hassle of moving multiple times
Acquiring a bridging finance means you don’t need to find a transient house to live in while you are in the process of selling and acquiring your new property. Some people choose to sell their existing home and rent a property as they look for their new home. You can find yourself moving house multiple times between that period.
- Manage effectively both mortgages
When you avail the bridging loan, you don’t need to make full repayments on both of your mortgages since you will still pay with the usual repayment even on your existing mortgage. In terms of the bridging loan, only the interest from it should be paid. This is more cost-effective than trying to make repayments on both mortgages.
Disadvantages of Bridging Loan
- You need to know in advance how much your house will sell
The only thing that you need to consider in a bridging loan is that you need to know ahead of time how much your present property will sell for. Most of the time people think their property is worth far more than the market is willing to pay for it. You will land yourself in a pool of uncertainty.
- The longer you sell, the more interest you will accumulate
If you are not able to sell your home quickly, chances are you could be paying a high interest rate of bridging loan for a longer period of time than you expected initially. Remeber, your bridging loan may incur higher interest rates than your standard mortgage.
Bridging Finance in Real Life
While it is an easy option when you need funds for a new property, it is still important to accurately estimate how much you can get from your existing property so you can plan ahead the money you need to save in case you need to pay extra interest. It is best to seek the help of the best bridging loan broker near your are to know the available options for you.