.png){kind=logo}
Whether you are planning to move into an upsize property or simply want to secure your dream home, if you don't want to or still haven't sold your existing home then bridging loans can turn out to be an ideal option. Meant to bridge gaps between the new price and the sales price of a home, these are short-term loans that help you until you've found a permanent financing solution for the same.
Know More about Bridging Loans
A bridging loan is a temporary loan that is calculated by adding outstanding debit of your present home with the overall value of the new property and then subtracting the total with potential sales value of the home. The leftover price is termed as ongoing balance and this standard to be the principal amount of the loan. In the bridging period you only have to pay the interest that is calculated on the overall principal amount.
The interest can be compound and is based on the standard variable rate, which is later added to the ongoing balance. Finally, this becomes a form of mortgage once you have sold the old property. A good practice to avoid paying too much interest is to have about 50% of the present home's equity value before you opt for bridging loans.
Do remember that during the bridging period you have to pay interests in two mortgages and this is why it is crucial to remain realistic with your expectations and then make your move accordingly as there are times where you have to sell the existing home as soon as possible so as to meet the terms of contract agreement.
Are There Risks Involved in Bridging Loans?
Absolutely, like any other form of loan there are certain risks involved in bridging loans as well. One of the most common ones is overestimating the price of your present home, and if at all the property sells at a less value then what you had predicted then you may not be able to cover the costs of the loan and this would lead to a bigger repay or debt. Therefore, carefully analyze the price of the current home and then predict its value as per that.
Another risk in bridging loans is that there are few lenders who increase interest rates when the existing home is not sold within the stipulated timeframe so as to add pressure to the service of loan. Further, if you haven't structured bridging loans appropriately then this tends to increase more pressure and makes the entire process even more complicated.
Therefore, do ensure that you structure the loan perfectly, as with this you will be able to meet the settlement dates as specified and overcome the pressure of losing your new home.
Factors to Consider When You Choose Bridge Loans
When you are out there looking for suitable bridging loans there are certain factors that you must consider and these are
For how long do you need the funds acquired from the loan?
Does the property that you are about to sell has an unconditional contract?
Are you purchasing an established home or building a new one?
Will you be able to meet the repayments and service requirements on the bridging and current loan?
Opting for bridging loans could be advantageous if you are able to manage the risks competently. And for doing so, do look after the aforementioned factors and at the same time make sure that you rely on a trustworthy lender who is able to come up with the guarantee and commitment that you are looking for and that too without any complications.