Closing dates for buying and selling properties often have to be coordinated, which can be a hassle. Maybe you have to bid on something expensive at an auction but you don’t have enough cash on hand. However, a bridging loan, while risky, could be helpful in this situation. From their applications to their expenses, benefits, and drawbacks, we from We Do Mortgages will be explaining everything that you need to know about bridging loans.
Let’s Start with A Definition Of “Bridging Loans”
Bridging loans are short-term loans that are taken out between two larger loans with longer terms. These can help you get from the closing table of one property to the closing table of another. Bridging loans, which can be completed much more quickly than mortgages in Essex, is another option.
Some examples of situations in which bridging loans in Essex could be useful are as follows:
- You can lose the house of your dreams because of a kink in the real estate chain.
- In order to bid well at an auction, you will need to gather funds rapidly.
- If you plan on buying a home, theft cannot be mortgaged, this clause applies. Rehabilitating the property to make it liveable or rentable is a prerequisite for securing conventional mortgages in Essexthrough us at We Do Mortgages.
Properties must be used as collateral for a bridging loan (or properties). Bridging loans may be your only alternative when all other options have been exhausted and you risk losing your asset.
How Do Bridging Loans Work?
Bridging loans can give money between £50,000 and £10,000,000 quickly. The amount will depend on equity and s75% is a common loan-to-value ratio. A loan is taken out using the property as collateral to get the money. Unlike bridging loans, mortgages are directly linked to your credit history. The bridging loan can be repaid by selling the home or refinancing with a bank.
Advantages of Bridging Loans
- You can receive a loan right now to keep the real estate deal going.
- Money can be borrowed.
- Flexible repayment arrangements are available.
- When banks won’t finance a property, private investors may.
The Cost of a Bridge Loan
Bridging loans often come with a higher interest rate because of the convenience of gaining access to a significant sum of money rapidly. Because of the short duration of bridging loans, interest is calculated daily rather than annually. Loan rates average around 6%, with some borrowers even finding rates as high as 20%. This is a lot higher than the current low mortgage interest rates.
Interest on a bridging loan can be calculated in three different ways, as opposed to just one with a conventional mortgage:
Payments are made each month and the interest isn’t applied to the principal, just like with an interest-only mortgage.
Interest is rolled into the loan and paid only when the bridging loans Essex is settled by us at We Do Mortgages.
Retained You take out a loan for an agreed-upon amount of time and the interest is borrowed by you; any interest that is not used is returned to you at the end of the loan.
Provision for Bridge Funding
There are other ways to secure funding for a real estate acquisition than a bridging loan. You can receive the money you need through various options, including a secured homeowner loan, personal loan, remortgage, and a second mortgage on your property.
Another alternative is a mortgage with a lease option to buy. The funds obtained from the refinancing may be used as a down payment on a new residence. If you’re planning on renting out your present home and utilising the rental income to pay down your mortgage, now is a good time to make the move. Use this information to better understand rent-to-own mortgages with our handy guide.
