Bridging Loans Explained

Published on: 07 May 2021 Last Updated on: 12 September 2024

Bridging loans have become popular among borrowers for all the right reasons. With everyone talking about bridging loans, including the mainstream media, the chances are that you have already heard of these loans before.

This is especially true if you are trying to move houses. However, several people do not know what a bridging loan is and how it works.

Taking a bridging loan could be the best thing to do if you have found a dream house you want to acquire before someone else buys it, and you are yet to find a buyer for your existing home, which still has a mortgage.

A bridging loan will give you the funds you need to buy the second house as you wait to sell the current one. Even so, there is so much more to bridging loans than you might imagine.

In this guide, we will discuss everything about bridging loans from the basics, pros, and cons. keep reading to discover everything you need to know about bridging loans.

So what exactly is a Bridging Loan?

Simply put, a bridging loan is a short-term loan taken on top of the current home loan. As the name suggests, a bridging loan is usually taken when you need to buy a new house immediately before selling your existing home. When you take this loan, you will be paying interest on two loans.

To put things into perspective, bridging loans are a form of interest-only loans.

The value of your existing property will determine the value of the loan. It is also vital to note that these loans have limited terms and contain special concerns. Depending on the lender, the amount and terms of the loan will vary. You can view this bridging loan calculator first before you apply for the loan to get a glimpse of your financial responsibilities.

The structure of bridging loans differs from one private money lender to another. Some private lending providers will require you to continue serving your loan until you settle in your new property. The private finance providers will the interest of your two loans together during the loan duration.

Once you find a buyer for your second property, the mortgage will be discharged. You will then start paying the principal and interest of your current loan. On the other hand, other private lending providers will ask you to service both loans after taking a new one.

After the sale of your home, the initial mortgage will be discharged, while the bridging loan might be converted into the home of your choice for your new property.

When taking a bridging loan, it would help to think about compounding interest because you will be charged for both loans. Always keep in mind that you will end up paying more than you should if you fail to find a buyer for your house quickly. Bridging loan interests are calculated daily and charged monthly.

Another key element you should have in mind is the duration of the bridging loan. These loans usually last around six months to 12 months, depending on the private finance providers and your preferences. Your loan length will be six months if you buy an existing home and 12 months for a new one.

What are the Pros and Cons of a Bridging Loan?

Now that you are aware of what a bridging loan is and how it functions, it is time to look at the pros and cons. Understanding the benefits of these loans and the challenges you are likely to encounter when you take a bridge loan will help you make the right decisions. Here are the pros and cons of a bridging loan:

The Benefits of a Bridging Loan:

Bridging loans have so much to offer. It is crucial to understand what you should expect with this type of loan to get the best options. Here are the pros of bridging loans:

More Convenience:

Do you want to buy your dream home quickly? A bridging loan will allow you to do just that even if you have not sold your existing house just yet.

Flexible Repayments:

Depending on your bridging loan structure, you will only have to service your existing home loan finance when you take a bridging loan.

Avoid Further Expenses:

You will not have to rent when you take a bridging loan. It will allow you to move even if you do not have a buyer for your house.

Considerations of a Bridging Loan:

Like is the case with any other type of loan, bridging loans also have their fair share of cons. For instance, you will be forced to pay more if you fail to sell your house as soon as possible.

Choosing the Best Bridging Loans for Your Needs:

Bridging loans are categorized as open bridging loans and closed bridging loans. Closed bridging loans have a pre-determined settlement date while open bridging loans do not have an agreed settlement date.

When looking for a bridging loan, it will help to consider the duration, interest rates, and loan structure. It would also help to compare alternative loans before making the final decision.

Above all, it is essential to find the right private lending company. Fortunately, you can use an easy-to-use online platform such as ADS.finance to find the best private finance option near you.

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Work with a Local Mortgage Broker Company for Your Vancouver Mortgage

Real estate investing is one of the best and safest investments that any of us can make. Whether you are planning to provide housing for ourselves, or want it to be a source of income, buying a property is undoubtedly a big step. Many people observe hiring a mortgage broker as something casual. The expense of working with a mortgage broker is irrelevant in terms of how fast and efficiently the work will be done. The best way to get a roof over your head is to pay in cash, the whole amount at a time. Of course, for most of us, this is mission impossible (unless you are a lottery winner or rich heir). An average employee would probably need years of savings to decide on such a step. That is why another, equally good and affordable option was created - taking a mortgage. Check this page to see some good and bad sides of getting a mortgage. If you decide on this step, you will certainly need help. The mortgage-lending process is not straightforward. However, it can be quite confusing for people who do not understand legal and financial affairs. That is why it is best to hire a proven mediator who has the necessary knowledge, experience, and information. Mortgage Broker Tasks When you apply for a loan, you ask for money from mortgage lenders. These can be banks, credit unions, and even individuals involved in this financial business. A broker is there for you, to guide you to the lender that offers the best deal, according to your requirements and capabilities. Individuals and agencies can perform mortgage broker tasks. They work closely with lenders and are familiar with their current offerings. At any moment, they know where the interest rates are lower, who gives the more extended grace period, and so on. The point is to find a product set that offers a monthly rate that won't put too much strain on the borrower's budget. One more strenuous task that brokers will do for you is dealing with paperwork. Applying for and obtaining a loan can sometimes be complicated. Someone who knows what documents you need and how to gather and prepare them can be very helpful. Benefits of Hiring Local Mortgage Broker As every intermediary, mortgage brokers work on commission they previously agreed with lenders. But they certainly want their clients to be satisfied. Hiring a broker may not save you money, but it will bring you savings in other segments. For example, you will not waste time gathering documentation, compiling reports, and filling applications. They already did all these many times, so everything can be done sooner than you think. With the authorization you give your broker, they will try to finish the job within deadlines. Of course, you will be there to monitor the entire procedure, to read everything they did, and to underwrite whatever it takes. But you don’t have to deal with forms and legal terms. That can save you a lot of nerves and energy. Brokers have an insight into government-funded special home loan programs. It is an excellent way of getting a loan to solve housing issues, especially for groups of clients who may have difficulty applying for a mortgage - young people with short employment history, the disabled, people with low credit ratings, etc. Hiring a Broker vs. Going Directly to Lender Many people observe hiring a mortgage broker as something unnecessary. They find it a significant expense for something they can do on their own. And that is perfectly fine if they are aware of the fact that, in addition to the lender, they have to deal with realtors, lawyers, underwriters, and various institutions where the necessary documentation is obtained. In the whole process of applying for a loan, you are likely to focus on a few offers that seem acceptable. You will go directly to the bank, which will present their products, with some variations, perhaps. Maybe you’ll have luck, and find a suitable offer for the first time. Experts from a Vancouver mortgage company suggest that can be a trap for those who are in a hurry to buy a property. As they don’t have time to shop around, they will usually opt for the first offer. In most cases, it won’t be the most favorable one. Brokers have an insight into a much wider selection of mortgage offers by a large number of companies and individual lenders. The benefit of this collaboration is precisely the access to more options, from which you can choose the best one or the one that gives you the best conditions The process of applying for a loan can be quite stressful. Having someone from that branch to help you with knowledge and experience is always a good idea. The cost of working with a mortgage broker is insignificant in terms of how quickly and efficiently the work will be done. Read Also: Finding the Best Mortgage Lenders to Buy Your Dream House 7 Expert Tips In Finding The Best Mortgage Broker In Vancouver Business potential of stockbroking agencies in India

Ideas to Help Find Your Dream House On a Budget

Entering through a vast doorway; confronting a spacious lawn with flower bed and fountains on another side. Passing through the hallway; you see; stairs are rolling from one point to another end. Stepping on the mirror-like marble floor and seeing the kitchen having polished wooden cabinets. You’re tuckered out of work and want a strong cuppa with your beloved one standing beside in the beautifully viewed balcony. Then suddenly you jump out of bed and realizing “Oh! That was just a fancy dream. I wish that would last forever.” You’re not the only Home Lovers; here are a bunch of people daydreaming their houses; yet can’t afford their Dream House. Living in your desired house; with all the necessities right on hand; feels like in heaven. Dreams have no boundaries but they can be restricted by available resources. So it’s time to save up your resources and cut down your over and above luxuries; to maintain good credit. Here come some useful tips; which in fact is a key to unlock your dream house on an available budget. One of the cruces is; if you’re planning to shift into another house whether next week, next month or the current year; you need to check your current credit score. The better the credit score; the easier it is for you to buy a home. If you do have a higher credit score; there are better options like mortgage rates, lease or rental options. Just looking at your credit score; you can surely rate your position on a scale of 10 to check the pace you have to cover to reach your desired level. You need to decide house type – single, condominium, rental, detached or semi-detached – prior to looking in the market. If you are the bread and butter; with children, a lovely partner, and gran N gramps; you should look for a house in proximity to workplace, school and community facility. Houses should be in short commuting distance to the neighborhood amenities. Being very cognitive for saving up for down payments is another option. The twofold path is: spending less and saving more. List down all details of monthly budget; all of incoming and outgoing or all of your regular and monthly expenses. Write down every single item and see where to cut the cost. If you are a tenant and want to have your own house; shift to a lower rental house where you can save some part of your money. Condos may be the best option for poverty-stricken tenants. The newly built houses may have price point miles away. Subsequently; you need to check for other – built-up – houses corresponding to your needs. You wanna look at extraneous or expenses you have and see where you can cut back. Set a smaller budget for monthly fun to have much leftover at the end of the month as possible. Setup an Auto Transfer to Auto Saving mode. 20% of your budget needs to be saved from a healthy down payment. Save up money to be budgeted. You need to check either you have a sufficient amount to buy the desired house or have to save more. The major notion is to save more than you need. Penny pinching should be the chore of maintaining a strong budget. Whenever you are having any crave for buying good stuff, eating outside, having fun in Disney Land; unnecessarily; just pin a picture of your Dream House and reminded yourself about your saving goals. Use bicycles or public transport instead of mobile; bring lunch to your workplace; no more tutors or extra tuitions; prepare a chart for monthly follow-ups and without any further question; maintain a temperament to follow this roster. I know this may be operose; nevertheless; hard time will be a trade-off for a future boon. Open house buzz, hunt for your dream home. Visit every property sale like Expo Property having numerous renowned lenders. Check for each lender’s success history, work plan, license, ratings and future stroll. In order to refrain from yikes; check a matching property dealer; categorically define him the housing type you have a hunger for and available budget. Be vigilant from any fraudulent; as people run after deep pocket. If in time, when you need to go down and experience less quality; then have faith; this downward path will lead you towards the mountains; you’re seeing from a million miles away. Behold; you know that you’re a Home Lover and is reaping the benefits by cutting down your payments. For all the Home Lovers; having the quest for their Dream House, you need to mow all your surpluses and spend a low lifestyle. Just have a crystal clear image of having your desired house; a healthy and peaceful lifestyle in the aftermath and no worries about any taper area. Woah! This is quite thrilling, yay? Snap-on it and yeah it’s done. So be on it and you will; surely; be in your Dream House and perceiving that fancy dream turning into reality: Soon. Read More : First home renovation Ideas and tips 6 Things You Must Know Before Selling Your Home

How To Learn The Value Of Your House

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Bridging Loans Explained

So what exactly is a Bridging Loan?

What are the Pros and Cons of a Bridging Loan?