Whether a person is downsizing, relocating, or upsizing a property, most people choose to sell their existing house first and then use the equity from this sale to complete a settlement on a new home. Sometimes this isn’t always possible as many new buyers often find themselves settling in their new home before selling on their present property. If you are in this type of situation, you may not have the available funds to make the payment on your new house on time.
You may risk losing your deposit which you have already paid or even incur a potential penalty. Bridging finance can help as it gives home buyers a short-term loan that will allow you to settle into your new home before the money for your existing property becomes available. It is essential to consult a reputable company such as https://www.propertybridges.com/bridging-finance/ before you make a decision.
What Is Bridging Finance?
Bridging Finance is a short-term loan designed to “bridge” a period between 2 situations, helping you with covering the price of your new property while you are waiting for your current home to sell. If the finance is approved, the finance lenders will issue a total loan amount for a period of time until the property is sold. In general, you have within 6 to 12 months to pay off your interest and balance on the loan. At this time, you should have sold your property.
Bridging finance is being used more and more in recent times by many people looking for quick money. They are quicker and easier to obtain than getting a loan from the bank. However, there are many advantages and disadvantages that the borrower should be aware of.
Advantages Of Bridging Finance
Bridging finance is quicker to obtain
The application, approval, and funding process for bridging finance is a lot quicker than a traditional loan from a bank. Commercial bridging finance is fast to arrange compared to other forms of finance. Bridging finance is not regulated so this allows the lender to be swift and competitive in how they arrange the money. This type of finance is essential if you need to finish a job or an additional project. For property buyers, the speed of bridging finance is a huge attraction.
No monthly repayments
When you take out a bridging finance loan, some lenders will not require you to pay back the money in monthly installments, this is known as a retained interest basis. A retained interest basis means that the cost is added to the total loan amount. Instead, the lender will ask for repayment once the property is sold. This is a lot simpler, more beneficial, and affordable for the borrower, instead of having to worry about the ongoing cash flow and making payments on a month to month basis.
Receive money before your property is sold
While you are in the process of trying to sell your property but you need immediate cash flow, a bridging loan is the most suitable option for you. In general, it can take months to sell a property. This can be quite frustrating if you need to free up cash in the short term. You can take out a bridge loan to meet your financial needs prior to you selling your property. Ultimately, once you have sold your property, your property sale can pay off your loan.
No exit fees
Most finance lenders will choose to make their money via arrangement fees and interest rates, without adding expensive exit fees should you pay off your loan earlier than expected.
Disadvantages Of Bridging Finance
The interest rate is higher
Since bridging finance is a short-term loan, this means you won’t be paying interest rates as long as you would with a traditional loan from a bank. Some lenders will charge higher interest rates to make up for this. Depending on how much money you borrow, the interest rates can range from around 0.75% through to 1.5% per month or potentially more depending on the finance lender that you use. It is not uncommon for lenders to charge extra fees for bridging finance. These fees include origination fees, in addition to standard fees and costs.
It can be risky if a future payment falls through
If you take out a bridging finance loan, you will have to think about future payments, especially if you are finishing a job or waiting for your property to sell. Unfortunately, if you are going to use the proceeds from the payment that you are anticipating, and the payment falls through, you may then have an unexpected expense. You could also have a significant debt which would make it very challenging in the long run. With every loan, there is a risk so it is worth thinking about before making any big decision.
Reduced sale price on your existing property
If your existing property doesn’t sell fast or at the price you are expecting, you may find yourself reducing the price of the property in order for you to pay off your bridging loan. So, if you do not sell your house within a period of time, the lender could foreclose on the property.
A wide range of fees
There is a range of fees for bridging finance, these include broker fees, arrangement fees, valuation costs, and sometimes legal fees.
Buying a new property and selling your existing home at the same time can get tricky. It can take a while to sell your home which could leave you with no funds to buy a new property. With bridging finance, you can avoid this stress, move more swiftly, and then give yourself plenty of time to buy a new property. It is important to get a proper evaluation of your property and be realistic about how much it is worth before you get a loan.
Compare your financial situation very carefully and consider your costs and then decide on your bridging loan. Before you decide to proceed with the bridging finance option, consider these advantages and disadvantages, these will help you to evaluate what you need. It pays to speak to a professional money lender so they can give you the right recommendations that you need.