Property owners use a bridging loan as a temporary financing needed in the interim to link the gap in time between the current finance and its replacement committed to the property under review. A bridging loan is necessary under different circumstances including the settlement of a new purchase due to a delay in selling your old property.
Many people have benefited out of this arrangement, and so these are the factors you need to consider before securing one.
Numerous variables play out on the acquisition of a bridging finance including the time it will take you to sell your property and refinance it as well as the cost of your property on the market based on the prevailing market conditions.
For this reason, the interest rate usually accumulates during this period, making the bridging loan very expensive. You need to consider whether it is worthy to go for bridging loan with all these risks involved.
The rate of interest
Since this credit facility is lasting for a short period, the lending institutions tend to charge a high rate of interest. Moreover, the risk involved in obtaining bridging financing is considerably high, which further increases the rate of interest charged to caution the lender against defaulting.
However, today the cost of bridging finance has fallen alongside other mortgage related loans. To need to weigh your options whether to secure this loan with the high interests rates or look for a cheaper alternative.
Several lending institutions such as major banks and solicitors among others offer this facility at a different cost. If you seek for this loan from other alternative lenders such as solicitors, you are likely to pay more on interest because they usually add between 3 and 5 percent on top of the regular interest rate paid on bridging finance.
It is incumbent upon you to consider the source of the loan to avoid paying additional cost unnecessarily. You should also consider using your current lender for the bridging loan should you have one presently.
Due to its short-term nature, the numerous variables, and the risks involved, the process of applying for a bridging loan is complicated compared to ordinary loans. Consequently, most borrowers have failed to secure it because they fail to provide all the necessary information as well as doing the calculations right.
Therefore, consider using a finance broker to apply for this facility because they have the experience to help you to incorporate all the required details and stand a better chance of the lender approving your application.