Bridging Loans

Bridging loans are loans that you can take to help bridge the gap when you find that there is a shortage of cash during the home buying process. For instance, bridging loans come in handy when the home needs repair before you can move in, or when you need to buy a home but have not sold the one you currently own. Also, many homebuyers use this type of loan when they are buying a house at an auction.

Bridging loans create more risk for the lender than a traditional mortgage. For this reason they carry higher interest rates. It only makes sense to use this type of loan when you have the ability to pay it off quickly.

Understanding Bridging Loans

Bridging loans are secured loans, and when you are using them in the home buying process you will typically get a regular mortgage on your new home and a second mortgage on the property you are currently selling. This means that the amount of the loan will depend on the value of both properties. The limit is usually 65% of the value of the properties in question. If there is an existing mortgage on a property, this is also considered. Typical bridging loans range between ?25,000 and ?500,00, depending on the value of the property.

How to Get a Bridging Loan

To get a bridging loan, you must first choose a lender and apply. Once you receive an offer from the lender, you have the choice to accept or deny. If you accept, the lender will arrange for valuation of the property. This needs to be done quickly, as money from bridging loans is typically needed right away. The valuation typically costs around ?200.

While this is in process, you will need to begin working with your solicitor to have the conveyancing tasks done quickly. The process cannot be completed without this step. If everyone works quickly, you can have your money in seven to ten days.

How Much Will It Cost?

Most bridging loans have fixed interest rates charged per month. Consider a loan worth ?150,000 at 1.0% per month. On this loan you will pay ?1,500 per month just for the privilege of borrowing money. This is expensive, which is why it is best to only use bridging loans if you can pay them back quickly. This rate can vary significantly, so if you have the luxury of time you will want to shop around, although in reality most people use the lender that can work quickest due to the time crunch with bridging loans.