Before we look at how to get the best bridging loan rates it is important to understand the concept of bridging loans and the benefits they can have.
So, you have decided to move homes either for work purposes or just a change of scenery. Spending a lot of time looking for a new property within your budget and discover the home of your dreams. The property may be on sale now, but you don’t have the cash flow to invest until you sell the current property, a major problem. The sale of your home could take some time, this is where bridging loans come in.
A bridging loan is typically a one-year loan or less, helping to cover the cost of your new home until you can sell the property you are currently listing on the market is called a bridging loan calculator can be very helpful with this. This provides instant cash and gives you time to sell your home before somebody else buys the property you have chosen.
Bridging Loans And Businesses
Whilst bridging loans are more commonly used for a private home or real estate investment, they are often used for businesses to potentially relocate or for expansion. Often a business is awaiting the fiscal year to evaluate the budget and funds may not be currently available.
A bridging loan can also be used for other purposes within the company. Payroll, covering rent or mortgages on current properties and, other expenses until the funds are released. A bridging loan can mean expansion and, the smooth running of the business can continue unaffected.
By choosing to invest in a new home or apartment the key for most people is selling your current dwelling freeing up cash to make the payment on your new home. This can be time-consuming but, with a bridging loan, you have the means in which to go ahead with the transaction.
Before applying for the loan beware that you need to be confident of the sale of your current home or you will face the prospect of two payments, your current mortgage and now the bridging loan. Typically lenders do not require the first payments for 1 year so long as your home is of higher or equal value to the new property. The bridging loan will typically cover around 80% of the new purchase so some equity is required.
Open And Closed Bridging Loans
There are two types of bridging loans available with a different rate structure for each.
Open bridging loans there will be no fixed repayment date although after one year you will be expected to start repayments on the loan.
Closed bridging loans are will have a set date for repayment on your loan, usually issued after the agreement has been made for the new property but contracts are yet to be signed.
For either type of loan, the lender will require a repayment strategy often involving collateral or the taking out of a mortgage.
Costs Of A Bridging Loan
Bridging loans are not usually charged with rates by the annum, monthly rates are employed as most loans are taken out for a short period of time. This can result in slightly higher repayment rates but are still competitive with other lenders. For example, if you buy a new dwelling at auction you can complete the transaction without selling your current property and not miss out on a beautiful property.
Another note to consider is the set-up fees involved, typically around 2% of the loan you are taking out, you should be relatively confident of repayment within the time agreed upon.
Eligibility For A Loan
Before a lender will make a decision based on the application there are things they will take into account. Property is often required as security on the loan also, proof of a constant income or available funds may also be required before the issuing of the loan.
For business or commercial bridging loans, a solid business plan will also often be required and be reviewed before the application can be approved.
Bridging loans are an excellent way of financing the purchase of a new home, investing in a plot of land for future development, and very helpful in refurbishing your existing property. For businesses, it is a way to expand and grow their current operations. Also, extremely helpful to start-up enterprises so long as there is equity to justify the loan. The most important facture is determining the rate at which the loan is provided and getting the best value for your new and exciting venture.
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