Bridging Loans

Bridging Loans

 Bridging Loans are used as a transition from the sale of your current property to the purchase of a new one. Lenders offer bridging loans at standard home loan interest rates and it gives a potential to capitalize on the interest. However, this loan may have large costs but it gives flexibility in between the two loan deals. 

It is not easy to deal with a bridging loan for scenarios may vary depending on the home loan deals involved. The right bridging loan depends on several factors including the length of time in which the money is required, the presence of the unconditional contract for the property that you are selling and if the property that you will purchase is already built or not.

 A borrower must also consider whether the new property is for residential or commercial use and if you can meet the repayments of your current loan and of the bridging loan at the same time. If you can do this, you are eligible in having a bridging loan. 

The amount that you can borrow will depend on the factors mentioned above. But given the short time between the sale of your current property and the purchase of a new one, the options that are borrower has are limited. Lenders usually give a six-month time frame to sell your property if your new property is already established. 

Meanwhile, lenders usually give a 12-month time frame if your new property will be built from scratch. Depending upon the situation that suits you, bridging loans entail various options like capitalized interest loans, loan-value ratios of 70 to 100 percent and principal-interest or interest only bridging loans. 

Major lenders offer capitalized interest bridging loans so that borrowers can avoid paying two sets of loans. During the transition period, the new loan requires no repayments. The capitalized interest loan is used to purchase a new home but you will only pay for the loan of your existing property. 

While you repay your existing loan, your new loan will be charged with interest and you need not repay this new loan for the first six months or until you have sold your home. Usually, a borrower can ask 100% of the value of the new property plus its corresponding charges and fees. 

However, if it is a combined loan, borrowers can only ask for 80-85% of the combined loan value of the old and new property. This value is determined after the amount of interest for the loan of the new property during the transition period has been considered. 

For your bridging loan to be approved, you must have your finances checked before you push through with the loan. This checking is for free and it can be done by a mortgage broker. Once you have determined the maximum amount that you can borrow, the selling and buying process becomes easier.