Bridging finance could be just what you need to help you buy a new property whilst waiting for the sale of your current home to go through in the meantime.
A bridging loan is a popular and well-established finance option for those looking to utilise a fairly large sum of money on a short-term borrowing basis. Most often, this type of finance is used to navigate the property market, whether that be for renovations, buying at auction or simply waiting for house sales to go through. Today, we’re going to take a closer look at bridging finance, so that you can better understand how this type of loan works and what it can offer you.
So, what exactly is bridging finance?
Bridging finance is relatively self-explanatory, as the term describes the nature of this sort of loan pretty accurately. Put simply, a bridging loan is a type of finance that, well… bridges the gap!
What do we mean by this? Well, a bridging loan can be used to create and maintain momentum in purchases or investments during a time when personal funds are temporarily unavailable for whatever reason. This sort of finance ‘bridges the gap’, so to speak, between the funds you have available and the total amount that is required.
So, it figures then that bridging loans tend to involve large sums of money being borrowed on a short-term basis. They are known as secured loans, which means that you need to be in possession of a high-value asset such as property or land in order to secure one.
What makes this type of finance a good choice for you?
Bridging finance can help you to overcome tricky financial and logistical obstacles involved in investments and purchases, offering breathing space when you require short-term funds.
In this sense, they can help you to move forward and achieve your goals without getting caught in holdups and setbacks.
What could you use bridging finance for?
Bridging finance can be utilised for all sorts of things and is particularly useful when it comes to property purchases and renovations.
Your bridge loan can be used to finance the purchase, build or renovation of residential, business or commercial property, providing a welcome alternative to taking out a second mortgage or remortgaging.
This type of loan often functions as the essential component required to purchase a property through auction, as well. If you are yet to have cash released from other investments, bridging finance can provide the helping hand necessary to enable you to secure property at auction.
Most commonly, our consultants here at The Mortgage Brokerage assist clients in securing bridging finance in order to escape the nightmare of a house-buying chain. With a bridging loan, you can move forwards with the purchase of your new property whilst you wait for the sale of your current home to be finalised, which can often be a long and arduous process.
What about interest rates?
Because bridging loans typically involve large amounts of money, the interest rates tend to be quite high and can range from around 0.4% to 2%.
Of course, the lender you choose and your personal credit history will impact what sort of rates are made available to you.
As bridging loans are offered on an inherently short-term basis, acting as simply a way to tide you over for no more than a few weeks or months, they tend to incur monthly interest rates rather than an annual percentage rate (APR).
Because of this, a seemingly small difference in interest rates can have a considerable impact on the overall cost of your bridging loan. It’s therefore essential that you consider working with a professional, experienced broker who can help you find the right deal for your needs.
Your interest will be charged in one of three ways:
- Monthly – Interest is paid on a monthly basis.
- Retained – You borrow the interest for an agreed period, paying the entire sum back at the end of the loan.
- Deferred AKA rolled up – With this option, you pay all of the interest at the end of your bridge loan with no monthly interest payments.
Disclaimer: Your home may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.
Here at The Mortgage Brokerage, we can help you to access bridging finance so that you can move forward with the purchase of your new home. Simply get in touch today to speak to one of our experienced consultants.
