The odds are you have stumbled across the term bridging finance, but you don’t know what it implies. Rest assured, though, we plan on presenting the features of this type of financing, and the situations in which getting it makes sense.
Defining Bridging Finance: When Can You Use It?
For the most part, a bridging loan is a type of short-term loan, which funds the purchase of a new home, until you manage to sell your existing home. In plain English, this type of financing is a quick, convenient option of getting new property, without the need to wait until you sell your current home.
You may also use a bridging loan in order to build a new home, while you’re still living in your existing home.
That being said, this type of financing is genuinely invaluable in pressing situations. These loans are tailored to aid people that need money ASAP. Considering that the majority of banks and building societies are rather restrictive to lending money, and the borrowing criteria has become stricter, there is an array of bridging lenders on the market, at the time being. This could be conveyed as a good thing, since it increases the competitiveness of the market.
In comparison with conventional loans, bridging finance allows you to get quick access to cash. On that note, in as little as a few days, you may get the financing you need to purchase property, start renovating your house, or begin constructing a new house. In one form or another, bridging finance could be defined as a type of property development finance. You can even use it to add a bathroom to a flat, or something of the sort.
That is not all though; numerous buyers at auctions utilize bridging loans in order to make purchases, as opposed to choosing a traditional loan provider. That’s primarily because the lending process is lengthy, and the criteria is stringent. Considering that you have a given timeframe to bring the funds at auctions, a bridging loan makes sense.
What Else Should You Consider?
Considering that this type of financing is meant for a specific, short-term purpose, you should expect the interest rates and additional fees to be higher, in comparison to traditional loans. You may also choose to roll up the interest payments, so that you pay all the interest expenses at once, in the form of a lump sum – only if this appears more convenient to you.
Additionally, you shouldn’t overlook that these loans come attached with a range of extra fees, such as arrangement, establishment and administration fees. Nonetheless, these will vary by lender. So, it’s worth analyzing this aspect, beforehand.
Plus, if you wish to take bridging finance in order to buy new property, and you’re expecting to sell your current home, you should ensure that you’ll be able to make repayments on the bridging loan and current mortgage, as well. Also, you shouldn’t make the mistake of overestimating your home’s value, and assuming it will sell overnight, when the situation of the market indicates the opposite. So, doing a quick market check is mandatory.
As you can see, bridging finance is a handy solution to numerous situations. Nonetheless, before choosing this form of financing, it’s best to evaluate your situation, factor in the risks, and make a sensible decision accordingly.