October 31, 2017

An Easy-To-Understand Guide of Bridging Loans

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If there is one thing that many of us have questions about, it’s finance. Unfortunately, it is also something that many of us require and sometimes, it becomes a necessity that we can’t comfortably live without. Although there may be many different types of loans that would fall under this umbrella subject, one, in particular, that may be of benefit to many people are bridging loans. When you understand more about these loans and what they can make possible for those who need them, you will see exactly how important they are.

A bridging loan is relatively easy to understand, yet it is perhaps one of the more complex types of loans that many people are going to experience in their lifetime. The name is very similar to the way that they operate. This type of loan, in effect, provides a short-term option for funding that helps an individual to form a bridge between where they are now and where they may be when a debt becomes due. It is not meant to be the primary loan in many instances but rather, it is just that short-term amount that will help you to get from here to there.

The primary way that bridging loans are used is in the transaction of properties. In many cases, you may be in need of a short-term option for funding so that you can take care of purchasing a property and do so in instances where it may not have been possible for you as an individual to finance it. The particular way that these types of loans work in most cases is to help an individual or family to buy a piece of property and to do so while still owning the home where they are currently living.

This can be of real importance because not everybody who wants to buy a home is going to be able to sell their home at the same time. In fact, depending upon the housing market, it may be a significant amount of time between one and the other. Bridging loans can assist families to get into the home of their dreams and to do so without having to worry about their current home selling. It isn’t the mortgage but rather, it is the loan that helps you to buy the house until you are able to get a regular mortgage.

Of course, as you can imagine, a bridging loan is going to be more expensive than many other types of loans. This type of short-term financing is something that some banks will do but they want to be fairly compensated for it. You need to look beyond the financing for this particular type of loan, however, because it is a “necessary evil,” especially if you want to get into a new home without any trouble along the way. Fortunately, these loans do not typically last very long so the extra money that you may be spending on financing is not going to be a long-term thing.

Although a bridging loan is typically one that is used for financing property on a short-term basis, it is not the only reason why this type of loan may be necessary. In some cases, you may find yourself in a rather pressing circumstance, and finances may dictate that you get a short-term loan that will help to carry you over until you can see better days. This may also be done with a bridging loan, but caution needs to be taken in that you are getting yourself in over your head.

Bridging loans are becoming increasingly popular, and that is especially true since the financial crisis has taken place. At one time, it was easier for an individual or a family to move into a new home and to worry about finalising the sale of their existing home until a later date. Today, many financial institutions are reluctant to lend money when they aren’t able to see the benefits to them specifically. That is why bridging lenders are often brought into the mix, and they can certainly help when these types of issues arise.

What Are the Benefits of Bridging Loans?

bridging loans

There are a number of benefits to using a bridging loan and considering those benefits can show you just how important this type of financing is for those who need it.

The primary benefit is getting that short-term money that is necessary to get into a home or to get yourself over a tight spot that you may be experiencing financially. Bridging loans tend to be approved relatively quickly and the money may be easier to get, especially because you are going to be paying a much higher interest rate for the short amount of time that you have it. That being said, the added money for a higher interest rate is well worth it when you consider the possible benefits of being able to get into a property that would otherwise have been lost.

For those who need short-term financing to get over an awkward spot in life, a bridging loan may be the only option available. There may be other financings possible if the amount of money that is needed is relatively small but if you find yourself needing a more significant amount of money, a bridging loan may be the option that you need to consider. As long as you look at all of the paperwork very carefully and make a sound decision based on logic and thinking ahead to the future, it may be a benefit that you can’t ignore.

If you’re purchasing a piece of property through an auction or if you have a significant amount of money and just want a straight out way too get financing for a residential property, a bridging loan may be the option you want to consider. Not every mortgage company is going to react quickly enough so that you can get the money needed when you win an auction on a home. Using a bridge loan may be the only option but it is one that you should consider carefully.

When Should Bridging Loans Be Considered?

As we discussed, the primary reason that this type of loan is used is when a family is trying to get into a new piece of property. There are also many other reasons why this kind of loan should be considered as well.

One of the reasons why many people may consider using it is because they want to invest in property and try to flip it quickly to make a profit. This type of property flipping has become very popular, although it can be risky business if you don’t know what you are doing.

Another reason why these types of loans are becoming very popular is that many financial institutions are not willing to lend money quickly to purchase the property. You may find yourself in a situation where you’re about ready to lose the property, and you might even be losing a down payment as a result. A bridging loan can help to get you over the gap so that you can get into the home and to wait the appropriate amount of time to get a mortgage.

There is also a certain degree of risk that is associated with taking a bridge loan as well. For example, you may find somebody that is willing to offer you this type of loan, but during time, you are not able to get a mortgage on the home where you’re living. If that is the case, you could end up losing the property and having to look for another place to live. Just keep in mind that a bridge loan is not a guarantee that you are going to be accepted for a mortgage.

This type of loan can undoubtedly be of benefit, and it may be something that you want to consider for your family. That doesn’t mean, however, that you should throw all caution to the wind and accept one of these loans because you are anxious to get into a new piece of property. Keep in mind that the percentage you pay for a mortgage is going to be much lower than what you pay for this type of loan. In fact, you may find that you are spending the maximum amount of interest, which could be up to 18 % annually for this credit.

It is always a good idea to check out the broker very carefully before the time that you consider a bridge loan and sign on the dotted line. You need to do the math carefully and make sure that it is the right decision for you and your family. When it works out well in this regard, however, it is something that can help you to get into a home and to bridge that gap until your former property can sell.