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The Advantages of a Bridging Loan

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Anyone with knowledge of the mortgage market will agree that it could take several weeks to qualify for a mortgage for your home. What then can one do to meet an immediate need for cash when purchasing a new property , and the existing one isn’t yet sold? Although a traditional mortgage could be a good option but it will take lenders a considerable length of time to complete the loan, and at the date that your chosen property may not be offered for sale.

There are, however, Bridging loans that can help you save. In general they are used to purchase a property even if the current one has not yet sold. They provide the financing during this time of transition, when buyers could encounter a financial situation. But, it is important to keep in mind that bridging finance should be for a brief duration and are intended to meet the need for funding between the dates of your property’s settlement.

What is a bridging credit?

A bridging loan permits you to purchase a new property while searching for buyers for your existing one. If you are planning to use the proceeds of a sale from one house to purchase another, and you are still searching for buyers, bridging finance can assist in financing the purchase of the new home for a time period that is between.

How can bridging loans be used?

Technically speaking, these loans aren’t much different than traditional loans, with the exception that they are of shorter durations and are interest-only.

The amount you are able to borrow is calculated using the value that is market-valued of your new home to the mortgage balance on your current home most likely the price at which you sell of the property you currently own is subtracted from this amount to determine the ongoing amount or the final debt that is the principal amount of the Bridging loan.

This means that you have to have substantial equity (at at least 50 percent) in your current residence prior to applying for the Bridging loan.

How are repayments determined?

During the duration of the loan the lender secures both properties in relation to one single loan (outstanding mortgage on the home and the balance that is ongoing). In the meantime, you are making regular payments on your existing mortgage, the lender will calculate the interest rate on the debt that is at its highest during the bridging time frame and add it to your loan when the property that was previously owned is removed.

In addition to providing financing to meet your short-term requirements There is also the benefit of paying off the loan you have already taken out during this time. But, don’t ignore the fact that you have two loans that you must service, and it is sensible to pay some interest in that time to lower the total amount of debt.

The advantages of a bridging loan

1. You can purchase a house without selling your current one.

2. The structure of interest only allows for easier management of payments between settlement dates.

3. The associated fees and rate of bridging loans are similar to traditional home loan rates, which means that you do not have to pay more.

4. Avoid the hassle and expense of moving twice and renting the house instead.

5. If you decide to sell your property at a higher price than the estimated price, apply the additional money to decrease the amount of your mortgage at no additional cost.

The risks associated with it:

1. One of the most significant risk is that your present property may not be sold in the timeframe you signed for. Many lenders will have higher interest rates over this extended period.

2. Another drawback could be the possibility that your home might be sold at a lower price than you had hoped for. To prevent this from happening, have an appraisal from a professional instead of guessing what your home’s worth, which can result in the cost of two appraisals by a professional.

3. All lenders do not provide bridging loans. If there is a requirement to change lenders, the termination fee and other exit fees must be paid.

4. Minimum 20% of your peak debt that is saved for a minimum of 3 months must be used as a the deposit on your home loan for your Bridging loan.

Do I require an bridging loan?

1. Selling and buying the property simultaneously – With the world not being optimal, there could be a gap in between the selling of your current home and buying a brand new one. Bridging loans can meet your financial needs in this time if you want to use the proceeds of sale from your current property to fund your new property.

2. Property development is a process that typically developers of property may need wait weeks before they can secure the necessary financing for the development. This could mean holding the property for longer than is necessary prior to placing it on the market for sale. With a bridging loan you can access financing in the shortest time possible to accelerate the growth of the property in order to make it the fastest sale.

3. The process of renovating uninhabitable buildings It’s possible to spot the huge potential of a property that is in poor condition and you’d like to transform however getting lenders to accept your plan is a difficult nut to get past. Instead, consider an unquestionably Bridging loan to help get the property ready to make a profit on the sale.

Bridging loans are perfect for those seeking flexible financing for short-term needs. They can be secured on any kind of property , and can take just a few hours to a few days to complete. But, it’s recommended to speak with an expert for guidance on the possibilities better. For more information, speak with an expert broker to get an immediate resolution to your concerns online, at no cost.