When applying or considering applying for a bridging loan, it is essential to be aware of the total cost of the loan beforehand. Without understanding all the costs, you could face higher interest rates, hidden administration fees, or possible loan default. Often a bridging loan calculator can be used easily to find out the total cost of the loan and if it is then a recommended route to take for your funding.
Bridging Loan Costs
Terms of a bridging loan vary from lender to lender. The terms are dependent upon your collateral getting used for the bridging loan, your exit plan and other items that can be factored in such as credit score, income or down payment, though the loan is not usually dependent upon credit history and current income.
Interest rates vary by the lender as does the length of the bridging loan offered and the amount of the credit available. Some lenders offer a higher loan to value amount, depending upon the collateral getting used. It is good to compare different lenders and their rates as some provide lower interest rates but then have a higher exit fee or higher administration fees. Some lenders wrap in the interest rate fees, and some require interest payments during the term. It is recommended to find a bridging loan calculator and compare the total loan costs from each lender before fully committing to a loan.
Finding a Bridging Loan Calculator
Using a bridging loan calculator online helps to estimate the total cost of a bridging loan without having to go through the trouble of applying and pulling your credit history or other items. This way, you can crunch the numbers and see if it would be a reasonable loan and if the costs are affordable for you to take on a bridging loan at this time.
When trying to figure out how to find a bridging loan calculator, you should first understand what fees and terms you need to include when using a bridging loan calculator. You will need to know the bridge period, loan amount, daily cost and total bridge loan cost. Sometimes the closing date of the purchase affects this as does any existing property and their proposed closing dates. Other items that may need to be included in the calculator will be any down payment cash you have on hand to use.
Many lenders have a bridging loan calculator available on their websites that you can plug in your numbers and estimate what your costs will be. How to find a bridging loan calculator online is very simple with a quick google search. There are a few variations of the calculator out there, so be sure to find one that includes all of the fees and costs included in your loan for an accurate calculation. Some lenders call it a swing loan calculator when you search for it; a swing loan is the same as a bridging loan, it is just another term for it that some lenders prefer to use.
Using Bridging Loan Calculator
If you plan on purchasing a property and selling your old property to fund the new purchase, but your old property has not sold yet, a bridging loan would be an excellent option to help support the new purchase in the meantime until your old property sells. While a bridging loan can be risky, it allows you to secure a new property when you do not have time to wait for your old property to sell.
To calculate a bridging loan, you will need to know if a down payment is required on the new property, if so, what amount is needed. You will also need to know the outstanding balance of your secondary property getting used as collateral that you plan to sell to pay off and exit the bridging loan.
Finally, you will need to know the fees and points the lender will charge. Let us create an example of using a bridging loan calculator, taking all of the above into account. Suppose your existing property valued at £250,000 and the lender will allow 80% of the value to pay off your old property mortgage, which would then be £200,000. In this case, the lender will charge 2% (2 points) of the bridging loan, and 1% in interest and fees, so your points and fees would then come to a total of £6,000. If the old property’s current mortgage balance is £150,000, you then take the total points and fees of £6,000 and also the mortgage balance of £150,000 from the loan amount of £200,000. At the end of this calculation, you would have £44,000 available to use from the bridging loan towards the down payment on the new property.
Bridging Loan Risk
In the example above, using a bridging loan calculator, the cost of the bridging loan is £6,000 plus the interest that accrues until the loan is paid off. The length and term of the loan would need to be added using a bridging loan calculator to figure out the full amount of interest to include in the total cost of the loan.
A bridging loan could be a great way to raise the cash needed to purchase a property before another buyer gets there first, but it can also be very risky. Your existing property would be the collateral used towards the bridging loan and would be at risk of foreclosure if the loan does not get paid in full at the end of its term.
Property repossession or additional high loan fees can happen if your property does not sell before the end of the bridging loan term, or if you are unable to sell your property for enough to cover the full amount of the bridging loan due at the end of its term. Knowing and understanding all the costs of a bridging loan are of the utmost importance when taking on such a high risk and short-term loan. Using a bridging loan calculator to estimate the costs upfront before applying is highly recommended.