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Understanding Bridging Loans

by Uneeb Khan
LOans

Your ideal home has finally come on the market, and you need to make a quick decision. But now you’re in a bind because you still need to sell the home you own and still owe a mortgage. One possible solution is to get a bridging loan so you can take advantage of a great opportunity.

A bridging loan is a short-term loan used to bridge the gap between two larger loans.

In order to bridge the gap between the purchase of a new property and the sale of the old one, borrowers often turn to bridging loans or bridging finance.

If you still have a mortgage on your current home, this will buy you some extra time to find a buyer. With this, you can “bridge the gap” between selling your current home and purchasing your new one.

What Exactly Is The Procedure For a Bridge Loan?

Your current mortgage is not a bridging loan, so you’ll need to apply for one from a bank or other lending institution. That could mean getting a loan, checking your credit, and paying interest and other fees typical of borrowing money. Some bridging loan providers may delay repayment until you’ve sold your current home, while others may insist that you pay both loans back simultaneously.

Bridging loans are short-term loans used to bridge the gap between mortgage payments. As mentioned above, the loan term is short and the value is determined by the equity in your current (previous) property.

Though interest will accrue and add to your bridging loan balance even if repayments are not made during the “bridge” period, some loan structures allow for this. Bridging loans are repaid in full, principal and interest included, once the original mortgage has been paid off and the old property has been sold. In the end, you’ll be responsible for the “end debt” on the new property.

Getting a bridging loan can help you buy a new house before your current one has sold. If you’re looking for a new home to buy, they may also help you find one faster. As was previously mentioned, it is more common than not that you will only have to make payments on your original loan.

Closed and open bridging loans are the two primary varieties of bridging loans offered by financial institutions today.

The closing date on a bridging loan is when you must have sold your old property to repay the loan in full. For example, borrowers who know the exact date on which their purchase agreement will settle may find this option to be most suitable. Use bridging loan comparison to check between different options.

There is no specific end date for an open bridging loan; rather, there is a maximum duration specified. People trying to sell their house but have yet to find a buyer might benefit from this. However, lenders may request guarantees from borrowers, like evidence that the property is listed on the market.

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