Bridging Loans-The Essentials
Below is a MRR and PLR article in category Finance -> subcategory Loans.
Bridging Loans: The Essentials
Summary
Bridging loans are a short-term and often expensive form of borrowing, yet invaluable for securing that dream home. However, caution is advised, especially with open bridging.
Understanding Bridging Loans
Bridging loans can help you secure a property while waiting for another transaction to complete. Here’s what you need to know:
Key Considerations
1. Interest Rates: Rates vary from around 0.95% for a first charge to 1.75% for a second charge or blended rate. Since October 31, 2004, in the UK, the FSA requires all charges to be detailed in a Key Features Illustration (KFI).
2. Fees: Expect an arrangement fee between 1-1.5% of the loan. Be aware of any exit fees. It’s crucial to identify a clear exit strategy from the loan agreement.
Closed vs. Open Bridging
1. Closed Bridging: Suitable for homeowners who have exchanged contracts on their purchase. Offers peace of mind due to a clear exit route.
2. Open Bridging: Riskier, and should only be considered if absolutely necessary. Used when a homeowner wants to buy a property but hasn't secured a buyer for their existing one. Open bridging usually costs an additional 1% due to higher risk. Lenders will require proof of marketing the existing property and a solid mortgage offer.
Benefits of Bridging Loans
Despite the risks, bridging loans offer several advantages, including:
- No valuation or legal fees, as legal work is often internal.
- Ideal for securing properties at auction with prompt completion.
Beyond Property Transactions
Bridging loans aren't just for property purchases. They can be used for:
- Bankruptcy Resolution: Helps save homes and businesses while enhancing cash flow. A potential alternative to an Individual Voluntary Arrangement (IVA), which can affect credit records and incur substantial fees.
- Buy-to-Let and Self-Build: Suitable for properties needing repair or those under construction. Funds are released in stages, approved by a lender-appointed architect.
- Estate and Probate Issues: Helpful when trustees of a deceased estate can’t obtain probate due to unpaid taxes and lack of cash.
- Repossessions: Can assist even after a legal judgment, providing a chance to recover the home without lengthy marketing processes.
Calculating Costs
For current monthly charges on various bridging loan types, use a bridging loan calculator.
---
This rewritten article provides a clearer, more organized explanation of bridging loans, presenting the essential information for potential borrowers.
You can find the original non-AI version of this article here: Bridging Loans-The Essentials.
You can browse and read all the articles for free. If you want to use them and get PLR and MRR rights, you need to buy the pack. Learn more about this pack of over 100 000 MRR and PLR articles.