Bridging Loans And Their Types

January 27th, 2011 |

Author: Home Loans // Finance & Investing // ArticlePros.com

Loans are temporal funds you secure from a lender in order to meet certain demands. There are various types of loans for various demands. When it comes to real estate issues, there are various loans you can always secure to acquire your desired property. Bridging loans are among the best types that can be of help.

What are Bridging Loans?

Bridging Loans are temporary funds you can secure from a lender for the purpose meeting a financial demand for a property until permanent financing is properly obtained. Such a loan can be used to finance the purchase of a new property while the borrower waits for the sale of an old one. The bridging loans are particularly meant for individuals, businesses and companies that require financial help for the purchase of commercial or residential properties.

Two Main Types

Bridging Loans are of two main types, namely Open Bridging and Closed Bridging. Let’s examine them one on one.

Open Bridging

This is a kind of loan that has no definite exit date. It is meant for individuals or companies who have located the properties they want to acquire but don’t have the direct date on when to exit the loan since they have not put their existing properties on the real estate market. In this kind of loan, the lender will like to see all the details concerning the new property with the proof of your existing property yet to be marketed. In most cases, 1 year is the usually the standard limit for open bridging when once you have paid the interest within the period in question.

Closed Bridging

This is a bridging loan with definite date for exit. The exit date is initially agreed upon as the right date for the repayment of the loan. This kind of loan is mainly available for borrowers who have already made an exchange on the sale of their existing properties. In most cases, the close bridging is usually less risky to the Lender involved since the repayment date is fixed.

Repayments Period

There’s always a repayment period and interest rate for bridging loans. In most cases, the interest is usually high since the loan is for short term and also involves potential risks. The interest rate is usually between 12 — 15 %. The value of the property being purchased, the loan period and the borrower’s calculated risks are factors that determine the interest rate. Again, the repayment period is very vital. This may range between 6 — 12 months or more depending on the agreement you have with the Lender. You might be required to repay the loan in full or in parts depending on the facts on ground and the agreement signed.

In all, it’s always very necessary for you to have all the documents needed for the loan approval on ground. It’s also very important to involve your lawyer in every stage of the loan securing process. This protects you from legal issues that may arise in future.

There’s always room to secure beneficial bridging loans. You can always locate a reliable lender to can offer you the right bridging finance for the purchase of your desired property. Find out more from mayfairbridging.com.

Ima Johnson