If you have recently found your dream property and are thinking about mortgage options, there are many options out there. You can opt for a fixed-rate and adjustable-rate mortgage; however, there is also the option of a bridging loan.
What is a bridge loan?
In real estate, bridge loans solve the cash deficiency when you are buying a particular property but waiting for the sale of your current property to go through.
Types of bridge loans
There are two types of bridge loans. There are closed bridge loans and open bridge loans.
Open bridge loan
This type of bridge loan can be repaid when your money is ready. The duration is usually up to a year or even longer. One feature of open bridge loans is that they have no fixed end date. These loans are more expensive and flexible.
Closed bridge loan
This type of bridging loan is typically short-term, which lasts from a few weeks to months. Because of this nature, they have a set end date. The date for payback is dependent on when you know you will have the money ready.
How does a bridge loan work?
There are two main ways lenders offer bridge loans. They include:
- They roll the two mortgages into one: This method allows you to take a single large loan, which accounts for up to 80% of the value of your house. You can then pay off the first, (then eventually the second) as a down payment for your new property.
- Have two loans: With this type, you can opt for a loan that is the difference between the current loan balance and at most, 80% of the price of your house. You can then use the money in the second mortgage as a down payment for your intended property while you hold on to the first mortgage until you are ready to pay it off (after you finally sell your house).
Most property buyers rely on bridge loans because it helps them to buy a new house without selling their current one. This is because in the real estate market when a seller’s house is on the market, several buyers may be bidding on that home.
A bridging loan offers the seller a form of security. This means that when you are buying a holiday home, you don’t have to depend on the sale of another property to finance it. You can contact Finbri Bridging Loans to get started on purchasing that new property.
What can you use a bridge loan for?
Bridge loans can be used for the development of the property, buying homes, buy-to-hire ventures, payment of tax, and divorce settlements. Property developers can also use it at auctions to help them secure closed housing deals on short notice.
In conclusion, bridge loans are the way to go if you’re eager to get on with buying that new property you have your eye on.