Should you happen to find your dream residence, you don’t want to lose that home, but your current property has not sold, and you need the money fast.
When you need that money quickly, what do you do?
Do not worry! You still have an opportunity to reign in that palace. The answer for you is to get a bridging loan. Bridging loan is meant to bridge the monetary gap between the sale of one’s existing property and buying the brand new one in minimal time.
Bridging loan is designed as a short term loan; they are also known as bridging finance.
Bridging finance falls under the category of secured loan, where security is required, typically a property. It implies that a borrower must offer some safety against finance.
To get a minimum price bridging mortgage, the mortgage quantity against your old house that you are preparing to promote within the near long term. The real value (equity) of the current property is taken into account while issuing bridging loans.
Let us discuss how to get bridging loans at low-interest rates.
You’ll find there are things to consider when choosing a low rate bridging loan.
To start searching for low-cost interest bridging loan, you will need to approach several lenders to compare the costs involved and compare and contrast the quotes provided by them.
Approaching different lenders may be somewhat troublesome. You can search using an online search engine such as Google.
There you can quickly find most of the lenders at just one place. You are quickly getting to understand some of their offers on their websites. Bridging loans are generally more expensive than your regular home mortgage due to them being short term and usually riskier.
Do proper research and understand that different lenders have different costs, analyse all the values using a bridging loan calculator. In this way, you can find bridging loans at a competitive price.
If you research each lender properly, you will start to understand the costs involved.
Some factors that can affect the interest rate you receive may include your credit score, so if there are some adverse problems try to resolve them before applying. The great advantage that bridging loans have is the fact that they are swift to avail, so you can get the finances sorted for your new home in a few days in some cases.
The Pitfalls of Bridging Finance: Why You Shouldn’t Always Trust the Headline Rate
Yes, this is a significant concern when assessing the right lender to do business with. There are many factors to take into consideration when choosing a bridging loan company which may ultimately increase the cost of the loan. In reality, frequently, it could be more economical to get a higher interest rate to gain from lower fees elsewhere.
Preventing certain pitfalls such as arrangement fees, penalty fees, legal fees, valuation fees and exit fees, could save unnecessary penalties for those who know where to look.
For many lenders of bridging finance, an integral factor to their financing policy depends ultimately on the real value of the property given as security.
Another factor is the region of the security property and property bought, generally in London and close to London property will get a better rate. Some won’t, for example, lend in Scotland. All mode of exit charges, additional option fees, and some other contingent charges they are appropriate for the danger involved. So the risk is represented by a more significant interest a month, and in some cases bridging loans can reach even as much as 1.75% per month.
You have to understand fully the costs that are involved before making a decision and be cautious with the extra fees — a bridging loan company’s headline interest rate maybe 0.50 per cent. On the flip side, another lender could be 0.80%. Therefore you may pick the initial creditor. On the other hand, the first lender is charging an exit charge of 1.50%. Alternatively, the different lender costs 0.40 % as the exit fee; So even though it may seem cheaper at first to choose the first lender but when you analyse the other costs, it becomes clear they are dearer. It might not seem a massive amount but include another nine weeks to the word and change the proportions, and it becomes a significant difference.
One other important factor is renewal charges. The significance of this will weigh heavily on the assurance of the debtor to repay over the agreed first term. Some lenders charge no commission. While others have low-interest rates will cost a one-off charge — maintaining precisely same interest rate, or a slight increase. So after failing to sell the house in time to repay the loan, the creditor offering 0.50percent might raise the rate to 1.50%. While another may only add a 0.5% renewal charge, which will signify that the 0.80% creditor is more affordable if you run an extra three months. This is why it is so crucial to understanding the costs that are involved in every scenario.
The exit fee is just another fee to be aware of, again making a significant difference in the final costs.
One way to save time and money and endless research are to use a bridging loan broker. The broker will have many lenders they work with and can analyse your requirements and the situation and then approach the right lenders to get you the best deal in the market at the lowest cost. A broker will take a fee, which is usually about 1%.
What type of security can I use
Bridging loans typically secured against a commercial or residential property. The suitable property could be your house, a buy to rent a home or commercial business property. Various lenders have different tastes on the type of security they need, so whom we proceed to will reveal the protection you may provide. Some will even give on a property that requires work carrying on it, or perhaps even bare lands if it has value.
It very much depends upon your circumstances. There are a variety of elements that may come into play, which can influence the quantity that you’re able to increase from the lenders.
The majority of the bridging loan company’s will provide a bridging loan which has interest payments deducted or “rolled up.” Fees will also be generally added into the loan once you go through the application process, so the arrangement costs and interest level need to be payable.
The majority of lenders will generally lend around 60-70% loan to value, which takes into consideration each of the setup costs and interest added. That is a critical issue to take into account as the costs lower the actual value of the property.
Do I need to make monthly payments?
As above, you probably won’t need to, and most individuals don’t wish to. It depends on what you would like and the volume you want. If you’re taking the loan to the maximum that the lender is comfortable. Then they will take a look over your worth and possibly allow you to make payment at the end of the term, including the interest cost.
Should you wish to make monthly payments. Then the lender may want to know where the money is coming from. Lenders know that with large monthly payments, customers will say they could manage it – even if it’s apparent from the due diligence they cannot. So being asked for three months bank statements at least and accountant references are not out of the way or out of the ordinary.
How long can I keep them?
Usually, the maximum term is 6-18 months though you can keep them for several years if required, extensions are possible with costs associated with them. At the rates bridging finance is charged you want to keep them for as little time as possible. That said, make sure the term is long enough for you to sort your exit route. If you go past the agreed term, the rate is likely to jump up significantly, and this is where the loans can cause serious financial problems.
Some lenders will give you the loan for a single day, so if you don’t need it longer, then why make extra payments.
What else should I know?
The headline rates highlighted are just that — headlines to capture your attention. You may see some lenders advertising as low as 0.37%, always be cautious and analyse all the other costs before deciding on the lender if you are in London and want an LTV of 25% to expect to pay the lowest price. If you are outside of London and want an LTV of 70 – 80% then expect to pay high costs.