How Does a Bridging Loan Work?

Bridging loans are a short-term piece of finance that gets you through a bit of a sticky situation.

When looking at bridging finance, you need a property generally to be bridging against, and it could be that you haven’t sold your current house, but you want to buy a new one.

It could be that you’re buying a home or a property that is inhabitable, i.e., it doesn’t have a kitchen or a toilet, for example, or even running water, and you’re going to be refurbing that property, making it habitable, and then looking at either refinancing it or selling it after the refurb has been completed.

They help people purchase a property prior to selling an existing property.

So the bridging loan is there to bridge the gap between where you are now and where you want to be. They’re generally available from 12 months through to 24 months, depending on the circumstances.

They are commonly used by landlord, property developers and investors.

The advantages, it doesn’t necessarily cost you anything at all on a monthly basis. What the bridging lender will generally do is add on all the interest that you’re going to pay over the 12 months and the 24 months to the actual loan. It is then repaid at the end when you repay the bridge.

So the key things when it comes to a bridging loan and how they work is what is the property it’s going to be secured against, what is the reason that you need it, and how are you going to repay the bridging lender at the end of it.

Many mortgage lenders offer bridge loans as well as mortgage loans. There are lenders that strictly offer bridge loans These are short-term loans of just 6-12 months.

If financing for the new home falls through you will repay the bridge loan lender minus fees and interest.

 

There are two different types of bridging loans….

Regulated Bridging Finance

A regulated bridging loan is secured against a property that is currently occupied or will be occupied in the future by the borrower or a family member.

A regulated bridging loan can either be a first or second charge. This means it can either be the only/sole loan secured against the property (first charge), or if there is enough equity in the property after a mortgage or any other secured loan, it can be placed ‘behind’ the first charge lender (second charge).

Unregulated bridging Loan

An unregulated bridging loan is when a property is being used as security for the business or an investment. This means that the property will never be occupied by the borrower or a family member. Then the bridging loan is taken out under a business instead of a person then it becomes unregulated.

 

Overall bridge loans are not only to help when you’re trying to buy a new house before selling your current home. They can be used to make repairs or renovations to your home before putting it up for sale. If you are relocating to a new city to help you purchase a new home giving you time to sell your old one. If you are building a custom home a bridge loan can provide funds for the construction.

We are a credit broker, not a lender. As a mortgage is secured against your property it could be repossessed if you do not keep up with your mortgage terms.

 

For more information call us on 01245 850165 to speak with the Active specialist team.

Alternately send us an email info@active.mortgage

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