Bridging Loans

A bridging loan is basically a short-term loan that can help you get acquire the difference between the money you have and the amount you need to raise.

Imagine that you own your own home. It is a great home and, given that it is already paid up, you are content with it. However, you find a great home buy in the market. It features a bigger home, a larger backyard, an expansive front yard and a great view to boot. In short, it is the perfect home for you and your family.

You check out the price of this dream home, and lucky you, it is far lower than what you expected. However, even though the house is for sale on a price that is relatively low compared to the mainstream market, you still do not have the money to be able to buy it off. However, if you could sell off your old home, you would be able to afford the house. Unfortunately, with the length of time that it will take to sell of your old home, there is a very distinct possibility that this once in a lifetime deal may be snatched from right under your nose. This is where a bridging loan plays its part.

What is a Bridging Loan?

A bridging loan is a loan that bridges the difference between the money you have and the money you need to buy off that home. In short, this is a loan made especially so that you have the money you were expecting to get for selling your old home. Since the sale of your own home is not going to happen quick but you need to get the money together as quick as you can to buy that new house, the bridging loan answers that need for you.

Main Types of Bridging Loans

  1. Closed bridging loan.
    The closed bridging loans are for those who already have their property on the open market. This type of loan is made specifically for those who are already committed to sell their home.

  2. Open bridging loan.
    The open bridging loan is for those who already have made the choice to buy a new house but have not placed their old home on the sellers market.

As a short term loan, a bridging loan has a very high interest rate compared to other types of loan. Thus, in order to keep the interest payments to a minimum, a bridging loan should be paid off as soon as possible. In fact, bridging loans are designed to be payable within several weeks, usually. The longest that a bridging loan can offer is a period of two years, although, at the end of this period, the borrower can renegotiate the loan.

Bridging Loan Benefits

On the plus side, a bridging loan is one of the quickest loans you can get. This is because it is specifically intended for sudden monetary needs which cannot easily be met due to time constraints.

For those who take out a bridging loan it is best to pay the loan off as soon as possible.

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