“Bridging” Your Way to Your New Home
Worried about not being able to sell your house in time for the payment date of the new? Bridging loans may be just what you need.
Bridging loans are best for emergency financing as it is a short-term loan that provides financing for the final purchase of your new property. Bridging loans are called such because it “bridges the gap” between your sale of your old home and the completion of your purchase of the new.
This kind of loan is also known as “interim financing,” “swing loan” or “gap financing.” While this type of loan is more popular for paying off a house, bridging loans are also known to be used by people with immediate financial obligations but are unable to sell a property that would supposedly pay off the mortgage.
Types of Bridging Loans
Like personal loans, bridging loans have two types: variable and fixed. The concepts of both variable and fixed bridging loans is also the same—the former have a changing interest rate while the latter has the same rate all throughout the loan payment period.
Money lenders who offer bridging loans may also give you the option of putting it on ‘first charge’ or ‘second charge.’ These jargon’s refer to whether your bridge loan would be your priority for repayment if ever you default on your loan.
Aside from that, you may also be offered a choice between a closed-bridge loan and an open-bridge loan. A closed-bridge loan best fits people who have a clear exit plan from the loan. This can be people who have already finalized contracts but are still waiting for the completion of the sale of their old house. Alternatively, an open-bridge loan is one that has no specific date of settlement. Because of this, it is considered far riskier than a closed-bridge loan.
Is A Bridging Loan For You?
A bridge loan is not for everybody. In fact, not all people who want to buy a new home or lot can acquire such a loan. This is because bridging loans often become more “expensive” than a regular home loan since it is considered emergency financing.
This kind of loan is only advisable for people who need to complete payment to be able to move in to their new home immediately but have not sold their old home yet. It is also advisable for people who want to procure a property from an auction but are unable to acquire a traditional home loan on time.
Bridging Loan Administration Fees and Interest Rates
Unlike traditional loans, bridge loans are expected to be paid for in a short period of time only. Because of this, interest rates are measured monthly and can cost as much as 1.5% per month. This means people who fail to pay the loan within a year would be spending as high as 18% interest for a single year, a hefty number compared to the traditional loan which ranges from less than 1% to 2.6% per year.
Aside from the interest rates, people who want to apply for bridge loans should also prepare for huge administration fees that can cost about 1% for the loan arrangement and another 1% for your exit from it. Licensed Money lenders have an option to charge on the property you are selling, the one you are buying or both.
Unsure of which licensed money lender to choose? Check out our Moneylender Review to see reviews by past borrowers.