If you are a property investor, homeowner, or real estate agent, then you might have heard the finance term, bridge loans.
If not, then not to worry, we will brief you with it in the following post.
We all know the house is an essential asset in people’s lives and finding a way to get it done right is an impossible dream. The reason for saying the same is the lack of resources that provides easy availability of housing finance.
Buying a house involves proper planning and careful consideration and most importantly, a suitable housing loan. An affordable housing plan is critical to buy the house. But what if you are looking for home renovation or a way to sell your wrecked house. Then, you might need proper funding for it. And when it comes to loaning money, we look out for the best housing finance companies.
We all have a belief that housing finance is only possible for purchasing a new home, but on the contrary to our general view, one can get a loan for renovation or refurbishment of house too.
Now, you must be wondering how?
So, to help you out, here we are casting light on the underrated financial market term which is bridge loans.
What Are Bridge Loans
Bridge loans are a short duration loan provided by the bank and specialised lenders until the person can find permanent financing. It helps in removing any obligation and offers urgent cash to go on. Furthermore, It is also known as interim financing or swing loans. It is most suitable for times when people look out for urgent cash.
The need for Bridging Loans
Those who are wondering about the need for bridge loans. Here are some pros you should go for.
- It provides immediate cash flow.
- Easy to get.
- Less complicated than traditional home loans.
What Is a Refurbishment Bridge Loan?
Most preferably, bridging loans are adopted by property developers as it provides easy money for building and developing costs. The homeowner can also be beneficial from it as one can buy a home with a bridge loan while the old house is on the sale list.
The real question which must be popping in your head is how to use bridge loans in property refurbishment?
As we already mentioned above, it is a fast, flexible, and reliable way to buy a home with a bridge loan. The preferable solution for those homeowners whose property is un-mortgageable and they are looking for a way to get something from it.
So, by using the refurbishment bridge loan, the user can invest in the house repairing or renovation and later sell it with a considerable profit. By doing so, one can get handsome money for a property.
How to Buy a Home with a Bridge Loan?
Furthermore, if you’re looking for some help in property purchasing, then you can give bridge finance a try. It helps in purchasing a new house by offering money. Suppose you have an old house that you want to sell, along with that you also want to buy a new property. So the plan is definitely to sell the old house and then use the same money to buy a new one. But, that can be tricky as we all know, selling a home is not a cakewalk. It requires time and patience to get what you are looking for, which can be a problem for those who require money.
Then, in such conditions, bridge loans can be a savior as it lends you money to buy a new property for 1 year. The time duration provided can be used to sell the old house.
How Is Refurbishment Bridge Loan Different from a Regular Loan?
If you must have applied for a regular home loan, then you will surely be aware of how troublesome that process can be. To start, it is not easy to get a loan for an un-mortgageable property. Secondly, most of the traditional home loans are generally granted for the long term. Finally, the home loan gets quickly rejected if the property has structural issues or has a value under the asked limit.
Considering all the limitations we mentioned above, bridge loans are best over the traditional home loans.
Cons Associated with Bridge Loans
The only cons we came across so far is that the interest rate of bridging loans is high as compared to other loans. Usually, it has hefty origination fees too. Another con of such loans is, it can be assigned for a short period. However, that can be acceptable for a borrower who requires the cash.
Despite its numerous cons, the bridge loan is a helping hand for all those who are in need.
Bridge Loan Costs
The cost of bridging loans is distributed into three main categories which are the following:
- Arrangement fees:- It is the process fees which is generally 1-2% of the total capital.
- Interest:- The interest for a loan that you can pay in a monthly instalment or a one-time payment when the duration of your loan ends. Moreover, the interest rate of such loans is comparatively higher
- Exit charge:- As the name suggested, it is the cost if users decide to redeem a unit trust or make some other investment.
All the charges can be varied. Most of the finance companies don’t charge any exit load. So, our advice here is before jumping on any services, do its proper research and give a thought to its interest and arrangement fees.
There you have it, we have mentioned all the essential details regarding the refurbishment home loan. We know that the decision of buying a home takes courage. And honestly saying, most of the people struggle with a down payment for it. So, in such cases, bridge loans can be a massive help for you. Not only, it provides the initial investment, but it also gives you enough time to look for some other source.
We hope that this article has cleared some of your doubts about bridging loans. If you have any queries regarding the same, feel free to reach out to us.