By Charlie Brown

Bridging caters for interim financing until the next stage of funding or permanent funding is obtained. The money from new financing is typically used to take out or pay back the Bridging loan. Bridging loans are additional loans that are taken out on top of existing home loans until properties are sold and loans are subsequently closed. During this bridging period you will have two loans that are subject to interest charges.

Types of Bridging Loans

Borrowers can generally choose between the options of open or closed bridging loans.

Open

An open bridging loan is where the property sale has not been completed and property may not be on the market. It can be used when home buyers find ideal property and aim to make an offer but their existing property is yet to be sold. An open bridging loan usually requires more equity in the property and a backup plan is a worthwhile consideration in case the property sale does not go on as planned.

Closed

A closed bridging loan is based on a date that has been previously agreed on for when your property will be sold. This means that the remaining principle of the loan can be paid out. Closed bridging loans are suitable for consumers who have agreed on sale terms. Since the sale terms of the property have been locked in, this type of loan poses a lower risk to the lender.

Reasons to get Bridging Loans

Bridging loans prevent the stress and hassle of attempting to align settlement dates and gives you a higher chance of selling your current home at a fair price without being under time pressure.
– While it would be ideal to sell your current home and purchase one on the new day, the reality is that there is a period during which the purchaser has to arrange for financing in order to buy a new before the day of settlement.
– With the uncertainty in the property market, bridging finance makes it possible for people to purchase new homes while waiting for their existing homes to be sold.
– It is important to note that bridging loans may not be suitable or available to all borrowers. Lenders usually require borrowers to have a certain equity amount in their current homes. Alternatively, lenders may require borrowers who do not have equity in their current homes to pay higher interest rates on bridging loans for new homes.
– Taking out a bridging loan typically involves the lender financing the purchase of new property along with taking over the existing property mortgage. Interest is compounded on a monthly basis on ongoing balances at standard variable rates during bridging periods.

Advantages

– A bridging loan ensures that you are able to buy your property immediately since you no longer have to wait for your existing home to be sold.
– You are only required to make repayments on the current mortgage during the bridging period.
– You can prevent the hassle and costs of being compelled to rent a home during the period between selling your current home and settlement of the new home.