A bridging loan as
name implies is a loan used to “bridge” financial gap between monies required for your new property completion prior to your existing property having been sold. A bridging loan is in simple terms a short-term mortgage that is secured against property that you are selling, with money that is lent being used to complete purchase of new property. Because of nature of their use, bridging loans can be arranged in a very short period of time, usually around seven to ten days, which is important when you need to complete on purchase or risk loosing property.
Bridging loans are short term loans arranged when you need to purchase a house but are unable to arrange mortgage for some reason, such as there is a delay in selling your existing property. Timing is of essence when selling one property and buying another. Sometimes if you are looking for a new home and right property becomes available, it is not always possible to wait until your current home is sold.
The beauty of bridging loans is that a bridging loan can be used to cover financial gap when buying one property before existing one is sold. For example, if you are in a chain, where you are buying a property at same time as selling a property, it's possible that you'll be put in situation where you need to complete your purchase, but funds from your buyer are not available. You are now under pressure to complete on a particular date but do not have funds available. This is where bridging loans come in. They are looked on as short term lending to cover a specific short term need.
Bridging loans can be arranged for any sum between £25000 to a few million pounds and can be borrowed for periods from a week to up to six months. Because of nature of bridging loans they can usually be arranged at short notice and within a few days. Bridging loans are widely available and can usually be arranged by your existing mortgage provider.
A bridging loan is similar to a mortgage where amount borrowed is secured on your home but advantage of a mortgage is that it attracts a much lower interest rate. While bridging loans are convenient interest rates can be very high. When considering a bridging loan please remember that you may be paying not only for bridging loan but also for mortgage on your existing property. Although bridging loans are convenient, you need to consider pitfalls too, like high interest rates.
