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Short Term Bridging Loan
The short term bridging loan is a short term loan to help customers with the interim period between the sale of your old home and the purchase of a new home. In other words, this home bridging loan helps you buy the house of your dreams by allowing you to borrow to tide over time and expense. In the time obtained by getting the short term bridging loan, you sell off your existent fixed assets and pay off the loan. This loan is often used by the service sector to bridge the gap between their savings amount and the cost of their new house.
Types of home bridging loans:
These short term bridging loans can be divided into basic categories: the 'closed' bridge and the 'open' bridge. A closed bridge loan is only available to homebuyers who have already exchanged on the sale of their existing property. An 'open' bridge loan is taken out by buyers who have found their ideal property, but do not want to sell existent property. A bank will ask lots of questions and want supporting information. It will also insist on you having lots of equity in your existing property.
The lender will demand to see the mortgage offer on the new property, the property details and proof that your current home is being actively marketed to be sold. The lender will also want to know how you will meet the interest payments. At this point, the lender will expect to see a contingency plan or strategy on paper which will be implemented by you if the sale does not eventually happen. The legality and validity of all your documentation will ultimately help you to get your home bridging loan. Most lenders put a 12-month limit on an open bridge loan. After that, they will renegotiate as long as you have paid the interest during the period and the property market is not on the downhill.
These loans usually come with high fixed interest rates ranging 2% to 2.5%. There is also an arrangement fee ranging from 0.5% to 1.5% of the value of the loan. Some lenders charge higher rates of interest and lower arrangement fees. There are also specialist lenders that are faster at issuing the cash, but borrowers can expect to pay a high price for the privilege. Deciding whether to go for a lower rate of interest or a lower arrangement fee depends on your circumstances. If you are confident that the sale will go through within a few weeks, then it is better to pick a loan with a lower arrangement fee. If you think you may end up bridging for many months, then the fee becomes a smaller part of the overall cost.
Short term bridging loans are generally offered for a maximum term of two years. The loan amount is always set at 90% of cost of new property. An applicant can repay the home bridging loan by paying the monthly instalment or pay the interest on the loan with a lump sum payment within two years.