In most of the cases when we are pressed with the need of an urgent loan to meet our requirements which cannot be fulfilled by any other form of loans, especially in the case of the mortgages, such loans are referred to as the bridging loans. These loans are offered for a very short duration and hence the interest rate and the other deciding factors depend a lot on the purpose for which the loan amount is required.
Just how does this loan work?
When an individual has to move to another location due to job requirements or any other reasons, they would prefer to sell their existing house and get a new house for themselves in the location as they move. However, property decisions are not such that they can be completed within a span of a few days. The main reason being the amount of money involved in the process. It is for this reason that the bridging loans are provided. These loans make it possible for the existing homeowners to buy a new home using the bridging loan and repay the amount once they get back their money on the sale of the existing property.
However, the financing available through the bridge loans are a lot expensive when compared to any of the personal installment loans available for any other needs. However, these funds are high in value and are offered for a short duration and this is basically the reason behind the high interest rates involved. So, are there any other alternatives which can be exercised to carry out the swift moves in the property.
- Other than the areas mentioned above are there any other places where you could find the requirement of the bridging loans:
- All the places where there is a considerable gap in the closing transaction dates of the property under consideration.
- When you are at an auction, buying without having sufficient cash at hand.
- When you have taken to renovate your property and are immediately up for sale.
Just after the financial crisis, when the world was reeling under the money crisis, the lenders too got tough on the lending norms. For the customers getting loans is not an easy task these days and hence bridging loans can be just the right thing they can be looking for. No doubt these come with a really high interest rate, the kind of comfort they offer by means of making the money available is of great value.
High interest rates
The bridge loans come with a very high interest rate. A monthly fee of 1.8% levied on them makes them even more expensive. In most of the cases these loans work out to be somewhere close to 18% where the administrative charges come on top of it. If you are the one who has sufficient money to deal with your requirements, you should either not take these loans or reduce the amount you take under them.
Who are all taking these loans?
Property owners looking for immediate sale and buying of the property, those who are real estate developers and individuals looking to purchase properties at the auctions with no money in hand should use these loans to their benefit. Apart from this there are several borrowers who are rich and want to get into the lending, can also take to these loans.
Bridging loans can be really effective under the following scenarios:
- Buying to let out the properties and the income accumulated can be unlocked to repay the high interest on the bridging loans still to get the profits.
- Investments using these loans
- In cases where banks and the other lenders take a long time approving the loan, these loans can come handy and make available the high amounts.
The market for the bridging loans is growing at a really fast pace. However, it makes a lot of sense to go through the complete documentation and the requirements along with the terms and conditions mentioned by the lenders under the agreement. Knowledge of the ways to exit the loan is of prime importance as it helps one take right decisions and save them from any financial disasters.
Last but not the least, since the market is flooded with lenders offering these kinds of loans, you need to really work out your way selecting the reliable lenders and the best deals which can make you loan decision worthwhile.