The Benefits of Bridging Loans
Bridging Loans can offer the solution to a difficult question; how can I afford to move house?
Particularly in today’s financial climate, more and more people are struggling when it comes to selling their home and moving on. One of the most common problems faced is finding the perfect home only to have your own house sale drag on indefinitely. This is just one of the scenarios in which a bridging loan can be of great assistance.
What is a bridging loan?
In simple laymen terms, a bridging loan (property seller loan), or swing loan as it is sometimes known, is a short-term loan. It rarely exceeds a span of three years and is often much shorter (sometimes just a week). It is designed to be a short-term finance alternative ideal for those planning on taking out a mortgage or longer-term loan in the near future.
As with many short-term financing solutions, interest on such a loan is likely to be higher, mainly because the lender is likely to be taking more risks than a traditional broker. For example, a bridging loan may be provided to someone purchasing a derelict house with the intention of renovating it, something traditional lenders would not offer a mortgage for.
Who can benefit from a bridging loan?
There are a number of people who may benefit from a bridging loan, including both those in the commercial and residential housing sectors. This type of loan is also suitable for those with poor credit ratings.
Bridging Loans are ideal for those looking to move into a new home before they have sold their existing house. For example, a couple can take out a bridging loan to fund the down-payment on a new house before they sell their existing property. This is a tactic often used in cases where the sale of a house has been slowed due to the poor financial climate or because a third party is delayed in obtaining funding. Once the original property is sold, the bridging loan can be paid off with the finances raised by the sale. In the meantime the couple is able to enjoy a new home without the wait. This is particularly useful for those that find a property at a ‘can’t miss’ price or locate the house of their dreams.
Those that have had a poor credit rating in the past may find that the swing loan is a suitable way to get their finances back on track. Such individuals should expect to pay more on interest, but they will at least be offered an opportunity, something many moneylenders will not offer.
Other circumstances in which a bridging loan may be beneficial includes:
1) Those buying at auction
2) Those looking to buy land/plots to build upon
3) Those looking to heavily renovate a derelict, or poorly-maintained property
4) Those looking to by-to-let
A bridging loan is also useful for bridging finances on a commercial scale. For example, a bridging loan can be taken out to ensure a property-building project is won and can be paid out once the contractor has completed the build. Alternatively, this type of loan can be used to stave off bankruptcy or prevent repossession during a particularly tough time. Of course, such a decision should not be taken lightly, but it should also not be scorned upon. Sometime a bridging loan offers just the right answer.
Paying-off a bridging loan
One of the benefits of choosing a bridge loan is the flexibility it offers. As this is a short-term financial solution many providers offer a number of ways of paying the money back.
Firstly, there is the option on closed loans (those with a definite deadline) to accrue the interest payments and pay them at the end when the loan is paid off. This allows for you to pay just one mortgage at a time, and the final payment can be factored into the new mortgage rate.
Secondly, lenders may allow you to ‘postpone’ payments if there is a problem. Of course this is a situation you should try and avoid, so as to maintain complete control of your finances.
Finally, the bridging loan is most convenient in that it can be borrowed for just a short period. Sometimes we just need a few days or weeks to ensure all finances are good-to-go. In this case, Bridging Loans are definitely worth looking into.
You can get a bridging loan from a bank or licensed moneylenders.