A bridging loan is a specific type of short-term financing that typically provides funding for businesses looking to buy a investment property before selling an existing one, however, whilst typically associated with this kind of usage, they can be used for a wide array of business applications.
When you are trying to purchase a new investment property and looking sell an existing one at the same time, a bridging loan can come in handy. This type of short-term finance solution is designed to help to ‘bridge the gap’ between the two transactions. Bridging loans are typically used for a maximum of 12 months and can be arranged relatively quickly and with minimal credit checks.
Here are some tips on how to find the best bridging loan for your needs.
Consider the application of the bridge loan
Bridging loans can be used for various purposes, including purchasing new investment properties before selling an existing one, renovating a current investment property, or purchasing a unmortageable investment property to add to a portfolio. It is important to know exactly what you need the loan before applying for it.
Compare interest rates and fees
Bridging loans tend to be more expensive than other types of loans because they are short-term and have higher interest rates. However, it is still important to compare different options in order to get the best deal possible.
Consider your exit strategy
A bridging loan is meant to be a short-term solution, so you will ideally need to have an exit strategy in place before taking out the loan. This could involve selling the existing investment property used to fund the bridge loan, re-mortgaging to a standard mortgage or bank loan, or selling any other investment properties or assets. Be sure to consider all of your options and choose the one that makes the most sense for your situation.
Shop around and compare different lenders
There are many different lenders who offer bridging loans, so it is important to shop around and compare their offers before making a decision. You may want to consider the feasibility of using a standard mortgage or bank loan.
Choose a direct Bridge loan lender instead of Broker
When looking for a short-term bridging loan, the amount of providers now advertising can be overwhelming. Added to this, you will probably find many of these providers are in fact brokers and not direct lenders. These as known as ‘middle-men’ as they are not lending the funding, but instead will act as a broker between you and the lender. As you would expect adding this these additional steps will increase costs and timings on receiving the funding. If you ensure you are dealing with a direct lender, you’ll be saving on both their commission and their processing fees by cutting these middle men out of the process.
If you require financial help but are unsure about the best bridging loan for your situation, you are not alone.
The first step is to fully understand what this kind of borrowing is, how it works, and what the risks are.
The loan ‘bridges the gap’ between the purchase and sale.
Bridging loans usually come with a maximum term of 12 months but can be as little as 6 months.
Can I make monthly payments on a bridging loan?
Bridging lenders don’t always require a monthly repayment, instead, interest payments are ‘rolled up’. This means they are added the loan is paid off in full at the end of the loans agreed term.
What is a bridge loan calculator?
Using a bridge loan calculator is a helpful way to calculate how much money you can borrow, how much interest you will be paying back, and how long the bridge loan period will last. This calculator should consider all the properties you currently own and the mortgages and loans you may owe against them. Submitting this information will allow you to use our online calculator to determine the loan that could be approved.
Advantages of Bridge Loans:
Use of a bridge loan for property development requirements
Bridge loans can also be used for non-property purposes such as:
Interest charges on a bridging loan
Interest rates on bridging loans are usually slightly higher than on regular loans because they are given a short repayment period. The interest rate will vary, however, depending on the lender. Though the application process for investment properties is more extensive, saving time by not having to apply individually may balance it out.
Advantages of Taking Bridge Loan with Direct Lender
When considering a bridge loan, borrowers should know the many advantages of working with a direct lender. Direct lenders offer borrowers several essential benefits, including:
Why Bridge Direct as the First Choice to take out a bridge loan?
Bridge Direct is a direct lender that can provide you with an instant decision on all bridging loan applications. They have over 30 years of loan experience and will help you find best possible deal for your needs.
You can call the Bridge Direct team on 020 3126 4969 or complete our contact form on the website, to get your free instant decision today!