Utilising Bridging Loans for Property Development

Real Estate Developers often need help funding their residential or commercial property development projects. Getting the right financing could expedite the purchase process and decrease the overall cost of borrowing if done correctly. 

There are various short-term property development options on the market, but the best option available may be a bridging loan. Quite often a Bridging loan is obtained for property development and investment. 

A bridging loan is a short-term loan that helps “bridge the gap” between one property transaction and another or until long-term, permanent financing gets secured for the property. 

Residential Property Development with Bridging Loans

A bridging loan may be used to finance the entire development project from the very beginning, or also for simple renovation and refurbishment projects at the property. This type of loan is also useful for purchasing land for development if there is a solid plan for the development of the land. When a borrower has an immediate need for funding, bridging loans are ideal.

The average term of the loan is approximately eleven months, but can sometimes be as short as two weeks or extend to as long as three years. The loan will provide the funds needed for the renovation or residential property development until you can either sell the property for a profit or arrange for a permanent, conventional mortgage for the property. 

The application process is also usually a lot simpler than the method used for traditional and conventional lending. Applications can be completed within 5-14 days, which is ideal when funds are needed quickly. 

With typically no monthly payments required, a bridging loan can be used to raise capital when cash flow is tight and then repaid when you are comfortable and have the assets or funds available to repay the loan at the end of its term. 

Loans can also be offered without a deposit required and have flexible lending criteria. Developmental properties are often purchased undervalue so that the lending can be based on the full or future value of the property. Bridging loans can commonly be used to buy properties that are uninhabitable or ineligible for conventional lending before rehabilitation. 

The main advantage of using a bridging loan for residential property development is the speed at which it can be applied for and disbursed. The main disadvantage is that the risk to the financing lender is much higher than with a conventional loan so that the interest rate may be much higher than those used for traditional mortgages and loans. It is because the requirements and securities needed for a bridge loan are much more relaxed than with a conventional loan, so the risk for the lender is much higher.

Bridging Loan Examples for Developers

An excellent bridging loan example is utilizing a bridging loan for a residential build. It is because lenders don’t have specific requirements on the land or work done before they release the funding, so the financing is available immediately for your use on property development. It allows you to have access to a large amount of funding within a short time, and ensure that you can build your home or residential property development without any delays due to funding.

In the example of a land development purchase, if you’ve already purchased the land and now funds are needed to cover the development costs, a bridging loan might be used to finalize the residential property development so that you can then finalize developments and sell the property to pay back the loan. Bridging loans can also availed towards purchasing a development site while still applying for development consent and approvals. 

A real estate developer who is looking to develop a property and then to increase its value before selling the property, but does not have the necessary funds to finance the development, so he finds a lender to give him £250K with a 12-month financing term. However, after some delays and struggles with the builder in charge of the development, the developer then needs to find a new builder to complete the project development. As a result of this delay and changes, the developer is not able to sell the property and repay his original lender within the 12-month financing term.

In order not to default on the loan, the builder then obtains a bridging loan. The loan is secured quickly and financed within two weeks, and the final amount needed to pay the developer’s original lender was paid along with any interest that accrued. The developer was then able to complete the project development with his new builder and raise the property value once completed for a final sale and to pay and exit his bridging loan.

Another bridging loan example is If you’re building your own home, then using a bridging loan can be a low-cost way to finance the build. The security in residential bridging can either be a property you own or property you intend to buy.

Bridging Finance Lenders

Bridging finance lenders usually offer bridging loans for the purpose and renovation of property as a form of property development finance. The loans can be used for both commercial and residential properties and can be used for total property development, or for just adding a bathroom and other simple renovations. 

The market for bridging loans is highly competitive, as their popularity rises. Even with higher interest rates, the lenders are competing with the speed they can consummate the loans in the terms offered. Some bridging finance lenders are also reducing interest rates to provide a competitive edge. To succeed lenders must have an edge from their competition. Most do so by creating loan structures that match their clients’ needs. 

With offering flexible lending criteria, bridge loan lenders don’t need to worry about traditional lending benchmarks such as income, affordability, and credit history. Instead, they mainly look at the value of the collateral uses and the exit plan in place.

Traditional loans can take several weeks or sometimes months to process and finalize. When it comes to property development, timing is of the utmost importance, and bridging finance lenders understand this. They can process and close their loans with days or weeks and without delays.

Bridging finance lenders also are less restrictive on the requirements to obtain the loan. Traditional lenders will review a property developer’s portfolio and analyze their portfolio to assess whether or not they can afford loan repayments. Bridging finance lenders differ in this aspect as a low credit score is not a deterrent, and also the interest can be rolled into the loan so that repayment terms do not immediately begin and there are no monthly payments towards the loan. The borrower can then start property purchase and development immediately without having to worry about repayments until the end of their loan term. 

Some bridging finance lenders may charge a fee for the arrangement of the loan and also miscellaneous administration fees. These charges vary from lender to lender, and most lenders offer a case-by-case basis on what they can provide and deliver for the borrower. Bridging loans can often be tailored to suit any borrowers needs on time and cost, which is why they are often the best available option for residential property development. 

Part of a new, innovative way of lending is peer-to-peer lending. Some peer-to-peer lending companies even offer bridge loans for private, residential, and commercial uses. Peer-to-peer lending are loans that are funded by private investors, and some suggest they can be secured even faster than a typical bridging loan because the loans are approved and underwritten, then made available for investment immediately. 

The total loan costs must always be considered before applying. Sometimes a lower interest rate may come with a more substantial exit fee, fund management fees, or other hidden costs. 

The borrower must be careful that they can repay the loan when it falls due; otherwise, they may risk repossession of the residential development property or high costs that may require a second, additional bridging loan used to repay the first. During the agreed term, the loan is usually secured against the equity in the property purchased. 

Exit Strategies

If you’re planning on selling the purchased property as your exit strategy for the loan, you should ensure that the term of the loan gives you sufficient time to secure a buyer and for sale to be completed properly. Otherwise, you could end up selling the property at a discount and for less profit than expected. 

If you plan to refinance into a long-term loan to exit the bridge loan, you should ensure that you are confident that your application will be approved, to avoid delays or issues with repayment once your bridge loan term is due. 

A valid exit strategy must be in place for any loan obtained. The best exit strategy for residential property development using a bridging loan would be to obtain a long term commercial mortgage which would pay off the bridging loan.

How to Find Low Cost Bridging Loans

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.

Understanding Commercial Bridging Loans and it’s Uses

We’ve all been in that position. Driving back from work, after one of those days where you hardly feel the difference between a Tuesday or a Wednesday. However, then suddenly an image pops up in your head.

Yes, you keep on driving, but now your mind is somewhere else, you are now picturing yourself in that very property you’ve always wanted. You know deep down that there’s no need to check

So, you keep on driving, but the image fixed in your mind. After some thought, you decide to use some financial advice.

Just in case there would be a small window of opportunity for you to dream a little longer. However, what if the financial advisor would speak of not a window but a bridge? A bridge that may take you to the property you so eagerly desire. Alternatively, the amount you desperately need. Let us discuss bridging loans and their uses.

What is a Bridging Loan?

A Bridging Loan is a financial loan given in short periods, typically borrowed when there is a gap to fill between selling an existing property and buying another. When you require quick cash flow, to keep a business afloat and several other scenarios.

The way to obtain a bridging loan is when you already have a property to put up as security as the lenders will lend according to the real value of your asset.

Let’s say you still have your current home and you see no progress at all in its selling. You can always acquire the loan to buy the new home, and then pay off the loan once the existing property gets sold.

The property can be of any type, residential, or commercial. The lender will lend according to its market valuation. The value determines the amount you get and the LTV they offer.

If you would apply for a loan on the security of the existing property to buy another property, you will receive the finances swiftly, regardless of your current income or the sale status of your existing property. Moreover, even irrespective of your credit history!

There is some flexibility in how you repay the bridging loan; there are several options typically offered by bridging loan companies. These include:

  • paying the interest monthly until the end of the term when the full loan payment is made, known as monthly payments
  • Paying the loan interest at the end together with the loan amount. Known as deferred or rolled up interest
  • Borrowing the interest amount at the beginning with the loan and then repaying at the term-end

In other words, a Bridging Loan represents one of the best options in the industry for financial emergencies.

Originally it was destined for Landlords and Developers, but hard times and even crisis have made their way through the present economy, people looking to buy their home now use bridging loans.

Its recommended that if you would like to apply for a bridging loan to use a bridging loan broker. The broker will already have established relationships with lenders. You are allowing the broker to choose the right bridging loan company for your particular needs. Ultimately this will save you money and time.

Bridging loans are a quick, and maybe a safe way to get your hands on the money you need. However, they should be used with caution. Not doing proper research on the topic, not having a broker helping you and not having taken the time to verify the lenders. It may cost you more than what you bargained for if you do not understand all the costs and terms. Remember not paying on time puts the security property at risk and maybe taken by the lender.

Commercial Bridging Loans

A Commercial Bridging Loan is an option to fill a gap when fast finance is required. The only variation is that the property dedicated to business must be at least 40% of the total amount the property is worth.

For example: Let us say you would buy a small two-floor building, with retail on the first floor and a small apartment on the second floor, the amount that the retail is worth should cover at least 40% of the total amount of the property. Otherwise, it cannot become a Commercial Bridging Loan.

These loans can be applied for when you are buying a commercial property, like an established business, a retail center, a part residential/part commercial property, or whatever other property dedicated to commerce.

The repayment does not have to happen immediately. The borrower can start paying some months after he or she has received the loan in full. There are no special qualifications required to obtain a Commercial Bridging Loan; you will need a security property.

The lenders will typically work very quickly to complete the loan application process. The speed depends on how fast you get the documentation they require and complete the valuation.

It becomes a great advantage for the individual in terms of buying a property, because time can be of the essence when you have a good deal on the table.

Some good deals may be a property on sale below market value, such as in an auction. In the property market, the advantage is to the person who can get hold of cash quickly when required.

Another advantage is that a Commercial Bridging loan can be requested to cover a mortgage at a later date, that way eliminating the need to go to a bank or a lender to get a mortgage for your new property.

Luckily nowadays there are many short-term lenders, and that number is only increasing, as more and more customers show up. So, there is a constant wave of lenders entering the market, and you, as a customer, have several different options and choice, and the market is lowering the interest rate.

Bridging loans can be arranged within 72 hours in cases where the money is needed fast. Of course, if everything would go as it is expected to and all documents are submitted. Some loans could take even a few weeks to complete but compared to a traditional mortgage which takes months to set up; bridging loans are swift.

Most bridging finance companies and lenders would use a delicate and somewhat conservative lending process. However, it remains the quickest and most effective way to get your hands on the funds you need.

The Bridging loan companies, unlike banks which have much red tape to go through (It is just something that comes incorporated into the banking service) are more flexible. So that’s where once again Bridging loans present the quickest way.

Bridging finance might be the best option, but remember the fact that short-term financing will always be more expensive than long-term lending. So yes, in the end, you are paying for higher interest rates than you would with a conventional mortgage.

The best way to approach a Commercial Bridging Loan is to keep the payback term short. However, a common mistake is counting on your existing property to sell quickly, and in many scenarios, it happens that it doesn’t. So, in other words, you got your loan, but your previous property doesn’t sell or money is not raised to repay the loan, and the agreed time is over. So, you end up paying very high-interest rates, and the situation will remain that way until the old property finally sells. Its advisable to have a sound exit strategy.

A bridging loan represents a great way to go, if used properly. However, it does carry its risks, and they can become considerable risks. That is why the decision of taking out a loan has to be a premeditated and properly investigated one. It is advisable to always use a financial adviser before taking out a bridging loan.

Commercial Bridging Loans and their uses

Commercial Bridging Loans can be used to purchase most available types of properties. They can be instrumental in property auctions, for example. As long as a valid exit strategy is in place, the funds could apply for a variety of business reasons — cashflow limitations, covering tax liabilities, the need for working capital, and industrial equipment.

Usually, the decision to use a Commercial Bridging Loan comes from the speed that the money is needed and the speed it could be acquired. High street banks will always have their dilemmas, however, though it still is a little conservative bridging loan lender can be less concerned by previous credit history, making it a most accessible way for anyone to apply through brokers.

Buying Property in Auction

Commercial Bridging Loans can be used negotiated in a matter of days, that is why they represent a perfect option when buying properties at an auction. Property auctions are very common, and most properties there are bought through Commercial Bridging Loans, where the completion is required within 28 days.

Getting hold of cash quickly for business

Another right way to bridge would be when you need to raise finance quickly; this would provide easy access to cash. Also, when you want to refurbish a property or finish the development of a new one.

Paying off a mortgage

Also let´s say that the property you own, in its existing condition would not cover the mortgage with a lender. You can get the loan and secure the property with its worth.

Buying Below Market Property

If you are in property investment or flipping properties, there will always be a constant buying or selling of properties. At specific points, you may be short of cash, or some delay might show up, and suddenly a bargain shows up and your plan meets a dead-end by the lack of funds. It would be ideal to consider a bridging loan at this point.

Saving a Property from foreclosure

Another of the most common scenarios where an individual would be when they are about to lose their property, unable to pay the mortgage. House repossession is a genuine and widespread existing problem in the financial industry. It is legal, and it is done by mainstream lenders such as banks. Many have lost their properties to a bank simply because they do not have the money to pay. A Commercial Bridging Loan can be almost the only option available in a case like that.

Raising Cashflow for Business

Taxes are something we all have to pay, whether wanted or not; it is merely part of business. However, there might come times in which you are short in cashflow that even a primary obligation like this one might represent an issue. Taking a bridging loan out would be a proper legal way to settle your tax liability.

In Conclusion

Bridging finance is becoming ever more popular; it has much more positive aspects than what it does negative. However, carefulness is recommended. It is essential to have all the documents needed at hand, as well as to establish a clear/sound exit strategy. It is to assure the lender that you can repay the loan with its upcoming fees. Borrowers should always remember that same as with a mortgage, the property may be at risk if it is not paid up to date. So maybe driving home and picturing yourself in the property you want might not be that complicated after all. Getting your hands on immediate cash might not be as difficult as you thought.

Be part of the easiest and most efficient way to borrow money in today’s financial industry. You won’t regret using this source, as long as you keep your numbers sharp and yourself organized.

Why Using a Bridging Finance Broker is a Good Idea

If you are involved in property investment or development, you will be aware of how the speed of finance is a factor in the market.

A bargain may seem to appear from out of nowhere and can also disappear just as quickly. Moreover, to be as effective as possible, you need to be able to react rapidly in the market when an excellent deal is accessible to you.

To be ready to pounce on a great deal, you’ll need access to quick financing. Without adequate funding that you require whenever you need it, you will be forced to kiss goodbye to some great deals on the market.

Fortunately, bridging loans can give you the quick funds you will need to ensure not to have to miss out on a fantastic deal, that will yield the returns you anticipate.

Bridging finance is a surprisingly simple process. The financing you get is dependent on the value of one or more properties that you own.

Not only is bridging finance fast, but it also can be quite versatile. When it comes to interest rates and your repayment terms, you are going to be able to choose what is going to work best for your specific situation.

Because bridging loans are obtained quickly and with favorable conditions when finance is needed fast, bridging finance is a popular option among investors, landlords, homeowners, and specialists like property developers.

Why a Bridging Loan Broker

What is excellent about a bridging finance broker is the fact that they have contacts with many lenders and know the best prices in the market. They can compare the whole market and get the right deal for your specific conditions and needs.

Simply because you will not be tied to any specific institution, you’ll be able to explore the alternatives. Also, the broker is going to give you the very best options in the market.

Given that most brokers understand that they have to compete for your deal, this gives you leverage to negotiate and get the best possible terms.

Although the quantity you can receive from a bridging loan is according to the worth of a single or more property that you own, that doesn’t imply that you cannot borrow high Loan To Value, some lenders go up to 80% LTV even 100% Loan to cost.

When using a bridging loan broker, always remember to get alternative terms from them. Different bridging finance lenders use different valuators for assigning value for your property or house.

With some lenders, they favour using an open market Worth. For others, the preferred approach is always to use a below market worth. You are going to have the ability to get alternative terms for bridging finance from different lenders through a broker. The broker should also understand who will give you the best bridging loan rate and borrowing amount.

Once you recognize which bridging finance broker you want to partner with, you are going to be capable of nailing down the right terms for your particular conditions and requirements.

Choosing the right Bridging Loan Broker

  • Make sure the broker has experience
  • Choose a broker that works with many lenders in the market
  • Check any credentials the broker may have
  • Check reviews online such as google reviews or yell.com
  • Ask what they have done before to get a loan for other people
  • Check their website
  • You must make sure they are easy to contact
  • Understand the broker’s terms from the start
  • Ask what fee they will charge
  • Use a broker that charges fees on results only

Furthermore, the broker must negotiate fees and also the amount you would like; you can also review the interest rate and repayment terms for the financing, the broker should do all the negotiations on your behalf.

How Much Will a Broker Cost

Some brokers will not take a fee from you and will get their charge from the lender directly. Remember you are ultimately still paying for this. Others may charge a percentage of the loan amount; this is usually around 0.5% – 2% and some other may also charge you a nonrefundable fee to start the process.

The cheapest is not always the best, paying a little more to the right broker and he gets you more LTV or better rates, and better conditions will ultimately save you money.

So search around and discuss with different brokers your requirements and use the checklist above to find the right broker.

Conclusion

Each scenario is different, and the broker should be able to understand your conditions and take the time to review your details. The information will allow him to choose which lenders will have the appetite for your particular needs at the best possible rates.

Apply to buy a Home with a Bridging Loan

Bridging loans are short-term financial loans that individuals can use to create a deposit on a new house before they sell their existing residence.

It is used to help an individual secure a new property as they wait for their current home to sell. They can purchase and move into a new home in super quick time rather than waiting around for months as their existing home sells. These loans are getting popularity inside the market merely because they are fast to get.

There’s no lengthy process and due diligence period as opposed to standard mortgage loans, which assists in securing a new home without having delays.

It could be utilized just before obtaining a regular mortgage loan on the new house. The current home is typically put up as security to acquire the bridging loan.

It can get to be an issue when a new home needs to be purchased fast. Your current home is on sale; thus, a bridging loan is a way of providing essential money to get the new property.

The application process to obtain a Bridging Loan?

The bridging loan application method is simple, and it may be a rapid process. It would help if you had a bridging loan broker to help you with the process. They can help with applying it correctly and understanding all the documentation you will need.

The loan company will supply an application process form which requires completion with all the necessary documentation and submitted by you.

This loan has different types of costs, such as valuation, broker fees, arrangement fees, exit fees, telegraphic fees, and legal fees. Information about this will be offered from the loan provider so that the payment and bridging loan are processed.

Your specifics need to be offered inside the application together to avail this loan. The loan company might ask particulars about the new home that you wish to purchase with the finances.

You have to comply with the bridging loan terms and conditions. Also, any fees that are associated with obtaining the loan. Since you will be using the current house as security, you will need to supply home details for the loan provider. You’ll also have to give your solicitor’s professional information to start the process.

Right after the loan is processed, the money will remain for your account. The cash could be used to maneuver ahead with the purchase of the new home.

Using a Bridging Loan Calculator

It is a good idea to understand how much the loan will cost you over the borrowing period. One way to do this effectively is to use a bridging loan calculator.

There are many websites from bridging loan lenders and brokers who have a bridging loan calculator to use. I would recommend searching the term “bridging loan calculator” on google to help find a calculator to use.

The calculator will allow you to input all the fees and interest rate within it and show results on the actual cost of the loan and your repayment process.

Paying back the bridging loan

You have to pay the agreed interest with the loan terms. In the event the current residence is sold, the funds from the sale are then utilized to repay the loan debt, paying earlier will benefit you from saving on the interest. Keep in mind that there may be a charge to repay earlier than anticipated.

Important Factors to note

Bridging loans carry a higher interest rate than your regular mortgage. They can go as high as 2% per calendar month in some cases.

They have different kinds of fees associated with them in the costs. There are various ways of paying interest on a bridging loan, such as monthly or rolled up until the end of the loan term.

The lender will have a charge on the current property and failure to repay on time may result in your home getting repossessed.

What is a Bridging Loan?

A bridging loan is very different from a regular property loan, in what way? this article explains the ins and outs of a bridging loan and their uses.

A bridging loan is a short term property backed finance. They are typically used to fund you for an agreed amount of time while permitting you to either find a longer-term finance solution or the sale of your asset.

Bridging loans are sometimes offered for between 6 to 36 months, with the loan and interest payments due at the end of the agreed loan term.

In contrast to alternative types of borrowing, the monthly interest is commonly rolled until the term ends or you exit, therefore you have no further payments during the loan term.

The application method is typically way less complicated than for regular loans or mortgages and of other borrowing methods and the loan process can be completed within a week or two.

Bridging loans are offered typically against real estate assets and the money is used for the following purpose typically:

  • Buying a property via auctions
  • Buying repossessed property
  • Building work such as conversions or refurbishments
  • Purchasing “below-market property”
  • Buying a property being sold quickly for cash

Bridging Loans Pros & Cons

Take into account bridging loans are a risky proposition if you don’t know what you are doing, it is wise to understand what you are using such a loan for and to think carefully before taking such a loan for your projects.

The Pros:

When money is needed fast, the process can be completed within 10 days.

No monthly fees so as such cash flow is available without worrying, although the asset will be under “charge”

Purchasing a property under market value and getting the loan according to its current market value.

Borrow money on assets that you would not be able to raise capital for from a regular loan, such as repossessed or worn down property.

The Cons

Bridging loans come with higher interest rates, although they are getting cheaper due to the competition within the industry, they are still much dearer than a regular mortgage for example.

The loans are very short so you have no room in making mistakes with your project or goal.

Things to consider before choosing a bridging loan option:

Take into consideration the costs involved, remember the high-interest rate and other charges that come with this type of loan. There may be hidden charges, its prudent to use a bridging loan calculator. Learn more here
Have a clear exit strategy before taking out a bridge loan.

Is your project viable? the asset could be at risk if you don’t pay the loan as agreed.

If for example, the exit strategy is to sell the property and make a profit, make sure you have time available to put the property on the market and find a buyer or you may have to sell it quickly if time is running and miss out on full profits.

If the exit strategy is to get a long term to refinance, make sure you will pass the application process or you could be stuck in a dilemma.

Getting the best deal, always check with a few lenders rather than a sole lender to get the best possible deal for your project.