Bridge loans: are they a wise idea? A Look at How They Work
Prior to selling their existing property, property owners can use a bridge loan to purchase a new investment property.
If you need funding quickly and have equity in other properties, a bridge loan might be a good option. These financing plans can, however, pose some risks, such as high interest rates and the risk of using the property’s value as collateral.
In What Way Does a Bridge Loan Work?
You want to ensure everything goes smoothly when you’re ready to buy a new investment property. You should sell your current property just in time to use the proceeds to purchase the new one. However, chains can break down, sales can fail, and funding can be delayed. A bridging loan can help in this situation. Bridging loans are short-term loans used to purchase investment properties. Typically, repayment takes place over a period of six to twelve months. In the case of a gap in your purchasing budget, this type of loan can be a great solution.
To give you an idea of how the process might work, here is an example:
To fund a down payment on an investment property, you can apply for a bridge loan through a broker or a direct lender. As soon as the purchase is completed, work can begin on the new investment property. Upon completion of the loan term, the existing property will be sold, and the proceeds will be used to repay the bridge loan.
Bridge loans allow you to borrow against the equity in your current investment property for a short period of time. Bridge loans are typically available for up to 70% of the property’s value. The ability to obtain enough proceeds from a bridge loan may be difficult or impossible if you do not have at least 30% equity in your existing investment property. Bridge loan lenders can determine whether you qualify for a loan and how much the final repayment will be.
You can only use this financing option if you have sufficient funds from other sources or assets to cover the loan.
Bridge loan brokers vs. direct lenders
Bridging loan firms in the UK are steadily growing as more and more people use this type of gap loan to obtain funding. The majority of these companies, however, are brokers rather than direct lenders.
In order to arrange loans, brokers work with known funding lenders. It is common for brokers to charge for their services, which can be very expensive and add unnecessary costs to the process.
The advantage of direct lenders is that you can deal directly with the people who are lending you the money. Streamlining the loan process by communicating directly with the lender can save you time and money.
Bridge Direct is a direct lender, which means that they have direct access to funds. The company was founded to provide short-term bridging loans to business customers in London, Manchester, and throughout the UK.
If your credit makes it difficult for you to qualify for a traditional loan, don’t worry! No matter your situation, Bridge Direct will assess each deal based on its merits.
Fill out the “Get an Instant Quote” form on www.bridge-direct.com, and you’ll receive a call from the decision maker with an instant decision. Bridge Direct may have a bridging loan solution that fits your needs! By calling 020 3126 4969, you can also reach a decision-maker.