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The Benefits And Pitfalls Of Using A Bridging Loan |
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Submitted by Collette Royal
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If you are caught in a property chain and are unable to purchase the house of your dreams, then why not apply for a bridging loan. A bridging loan can help you to secure your new property before you have sold your old one. However, bridging loans can also be problematic if your circumstances change. If you want to know whether a bridging loan is right for you, then here is some advice on the benefits and pitfalls of using a bridging loan.
What is a bridging loan?
As you might have guessed, a bridging loan is a type of loan that ‘bridges’ the financial gap between selling your house and buying a new one. If you have found the house you want but are unable to get a mortgage for it because you are yet to sell your old property, then a bridging loan might be the answer. These loans are short-term and are used to buy a new house or raise capital prior to a house sale. You can usually get bridging loans for £25,000 up to a few million, depending on your circumstances and needs. Loan terms usually range from one week to six months, depending on how long it will take you to get the money from your sold property.
Getting your new house quickly
The reason why bridging loans can be advantageous is that they allow you to remove the problem of housing sales chains, and buy the house you want straight away. This stops you from missing out on your dream home, and will then allow you to concentrate on selling your old property.
Costs of a bridging loan
Although bridging loans are secured in the same way as a mortgage, the interest rates are much higher. You are paying for the convenience of the loan, and so the shorter the term you can take the better. Also, you need to remember that you will have to pay both the bridging loan and your old mortgage at the same time. This can be a serious financial burden, and you need to think carefully before taking out one of these loans.
House won’t sell
Although bridging loans are good if your property is going to be imminently sold, they can become serious problems if you cannot sell your home. You will be left with the bridging loan at a high interest rate, as well as your mortgage. This could leave you unable to make repayments, and you could lose both your old and new homes. Make sure that you have plans in case your property does not sell for a while. Only try and take bridging loans out when you have firm buyers.
Who should get a bridging loan?
Virtually anyone who has a property and is looking for a new one can apply for a bridging loan. The loan is secured against property, so even people with poor credit can get hold of such a loan. These loans are extremely flexible and can help you secure a new home quickly, but you need to take into consideration the high interest rates and the possibility that you current house will not sell.
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