Why Get a Bridging Loan
By definition, a bridging loan is a loan extended to a person intending to buy another house to enable him to the house before they can dispose of the one that they are currently holding. The facility’s main purpose is to help the buyer get the house without necessarily having to wait for the other house to be sold.
Since it might not be easy to get a house buyer with ready cash immediately, a bridging loan ensures that you don’t lose the opportunity to buy the house that you have found due to this delay. The loan avails funding to buy the house that you want as you wait to be paid for the one that you are selling.
Features of a Bridging Loan
Interest Only Loan
The loan is usually structured in a way that you only have to pay for the interest only for the period that you will have the loan. The principal is to be repaid only when the house that you hold has been disposed of. In some cases, you will not even have to pay for the interest. It will be loaded to the principal, and once you get paid, you pay it off like a bullet payment. This ensures that you have an easy time purchasing your house since repayments on a property loan can be at times quite hard to raise.
Short Term Loans
Another feature of a bridging loan is that they are usually short term facilities- in most cases until you receive the payment for the disposed of house. In most cases, this is usually between 3 and 12 months, during which time it is expected that you will have received the payment.
The reason behind this is that it is considered that the proceeds from the sold property are the ones that are going to pay off the loan and for this reason, the loan should be recovered upfront once the payment is received.
Expressed As a Percentage of the Sale Price
A bridging loan in most cases is usually expressed as a percentage of the cost of the house that you are seeking to dispose of. Usually, the loan is meant to cater to the deposit of the house that you intend to buy. Its main intention is to ensure that you do not lose on the deal. Once you have paid the deposit, you will be allowed some few days, usually between 3 and 6 months, to raise the rest of the money.
The above are some of the common features for a bridging loan. This is a good loan as it gives you an easy time when selling a procuring another house. You will not have to strain financially, and you will also get to capitalize on the deal at hand.
The next time you are in such a situation, be sure to talk to your lender to extend this loan facility to you. The advantage of this loan is that it carries a minimal risk for both the borrower and the lender since money is recovered once the house is disposed of.