If you didn’t already know, bridging loans were structured to ensure that you can pay for items even though you’re waiting for your funds to become available. This just simply means that your life doesn’t need to stop while you wait for money from items that you’ve already sold. Within the real estate world, people often find themselves buying properties even though they are waiting on another one to sell. In essence, bridging loans are fully secured and they require you to have high-valued assets while you’re waiting on another one to be sold.
What Can A Bridging Loan Be Used For?
Bridging loans can be used for various reasons. These are as follows:
- Purchasing property
- Developing owned property
- Business ventures
- Paying off an existing tax bill
- Buy-to-let investment
- Paying for a divorce settlement
Additionally, these loans are used by property developers in auctions. This is done since they usually need to deposit funds before their purchase can go through. Hence, this facilitates the short notice details of their transaction.
Bridging Loans For Property Development
Most property developers and landlords are familiar with the process involved with bridging loans. They often indulge in this type of loan to fund projects that they can sell at rapid rates.
Residential Bridging Loan
Bridging loans have become even more popular with persons who are interested in purchasing new houses. So, if you’re moving house, then you can secure a bridging loan to help with the finances. Rapid Bridging specialise in bridging loans and offer fast bridging loans for your needs.
Types Of Bridging Loans
Thus far, there are two types of bridging loans that exist. These are as follows:
1 – Open Bridge Loan
The ope bridge loan doesn’t have an end date. This just simply means that they can be repaid whenever your funds are released or become available. In most cases, they generally last for a year and can go one longer if need be.
2 – Closed Bridge Loan
Unlike the open bridge loan, the closed bridge loan has an end date. However, the date is dependent on whenever you know that your funds will be available. These are short-termed and generally last for a couple of months it even just a few weeks.
It should be noted that open bridging loans are very costly when compared to closed bridge loans. This is simply because they are very flexible. So, before you choose one, it’s best to think about the exit route that you’re going to take to repay the loan.
How To Choose The Best Bridge Loan
Before you dive into a loan, it’s best to consider a couple of things. These are as follows:
- The amount that you need to borrow – Bridging finance is offered anywhere between £5,000 to £10 million. In some instances, you will be able to borrow more if you can facilitate it.
- The worth of your property – The value of your property affects the amount that you can borrow.
- The length of time that you need to borrow it for – Since bridging loans can vary from one month to two years, you’ll need to consider this before you sign up for a bridging loan.
- Does your property already have a mortgage – If you already have a mortgage on your property, this will affect the possibility of you securing a loan. Additionally, it also affects if you can look at first or second charges.
First Charge Or Second Charge Loan?
First charge loans that those where the bridge loan is the first charge that can be made against your property. However, in this instance, there can be no other borrowings against your property. Mortgages are generally considered as first charge loans but if you don’t have any of these, then you can apply for a bridging loan.
Second charge loans are different from a first charge loan since they allow you to have more than one borrowing against your property. So, if you already have a mortgage or a loan, you can borrow again. However, you’ll need to acquire permission from the lender before this can be done. As such, there is no set limit to what you can or cannot charge against your property.