Bridging loans are also called bridging or reserve loans. These loans usually meet short-term money needs that are easy to obtain. Hence, these types of loans play a significant role in quick cash aid. To get a loan in the shortest possible time, you need to follow a series of procedures. Plus, you don’t need any paperwork to get your loan, making it an easy and hassle-free fundraising method.
Both individuals and legal entities can obtain bridging loans for various reasons.
Some of these include the payment of unspecified tax claims, getting short-term working capital, buying real estate at auction, regenerating properties, solve temporary problems with cash flow, construction of commercial, industrial and residential buildings; purchase of land; and much more. The loan is usually paid in a lump sum, and interest is generally paid monthly.
Bridging loans can be the right solution for individuals or businesses if they need short-term financing for investments, usually real estate investments. As the name suggests, this temporary bridging loan is a temporary solution until you can get money from another source or a long term loan. If you have just found your dream home, you want to buy it, but it will take some time before you can sell your current home, you can use this type of loan. You will be able to buy a new property, and you will have ample time to sell your current home at the right price.
The most positive thing about this type of loan is that it allows you to take advantage of real estate investment opportunities. Intermediate lenders can usually quickly approve loans, especially if you have a low value loan. If you are confident that you can return it quickly, then this is a good solution. However, it is essential to opt for a no prepayment fee agreement so that you can repay the loan immediately when you have access to the best financing.
Bridge loans also have disadvantages. Access to this kind of immediate funding is expensive – interest rates are several points higher than for long-term loans, and additional settlement, appraisal, legal, and possibly intermediary fees must be paid, so be sure to know all the costs before registering for such a loan. Before obtaining a loan of this type, it is advisable to contact a broker and look for the best conditions.
There are two main types of bridge loans: a closed bridge and an open bridge. If you have already traded for the sale of your old property, the chances that the deal will not take place are very low. This way, lenders will approve closed bridge financing for you. Find out if the lender can offer you a settlement without early repayment. Ask about mortgage options. It is easier for you to refinance a closed bridging loan with a long term mortgage loan through the same lender, with less paperwork.
If you have not listed your existing property for sale or cannot sell it, but want to buy a new home, then the lender will offer you an open bridging loan. Buy it only if you are sure that you can sell your old property and pay off the loan at high interest rates; otherwise, it will quickly become costly.