What Are Bridging Loans
Below is a MRR and PLR article in category Finance -> subcategory Loans.
What Are Bridging Loans?
Overview
If you're in the process of moving and have found your dream home but haven't sold your current one yet, a bridging loan can help cover the financial gap.
Understanding Bridging Loans
A bridging loan is a short-term loan designed to provide temporary financial assistance during moves or property transitions. They are particularly useful when purchasing property at auctions with tight deadlines. Due to their higher risk for lenders, bridging loans come with higher interest rates, so it's crucial to ensure you can repay the loan within six months.
Eligibility
These loans are often more accessible than standard loans or mortgages. Even those who are self-employed or have a poor credit history may qualify. While eligibility can vary by lender, the key requirement is the ability to make repayments.
How Do They Work?
For property transactions, bridging loans allow you to mortgage the new property and take out a second mortgage on the one you're selling. Typically, you can borrow up to 65% of the combined value of the properties after deducting any existing mortgages. This can range from £25,000 to £500,000.
Securing a Bridging Loan
Obtaining a bridging loan is similar to acquiring any other loan. It involves comparing various online lenders and mortgage providers. However, lenders will conduct a property valuation to determine suitable loan amounts. This process usually takes about 7-10 days, during which you'll manage other legal aspects of buying a house.
Costs
The cost of bridging loans can vary. Specialist lenders offering loans for auction purchases tend to provide lower rates since the property purchase is legally binding. Those with bad credit may face higher costs. Interest rates are typically calculated monthly, averaging around 1.5%. The priority is often securing the loan quickly to finalize the new property purchase.
Alternatives
If selling your current home in time to fund the new one proves challenging, bridging loans might be your best option. Traditional loans could have longer processes and less favorable terms. If you expect the proceeds from your property sale soon, a bridging loan may be the ideal choice.
By understanding and carefully considering these aspects, you can determine if a bridging loan is the right solution for your property-financing needs.
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