Bridging loan
Bridging loan is a type of loan that is given to a person or any business organization for filling the monetary gap between two stages, which generally are the buying and selling stages. These loans are gaining good momentum these days. These loans can easily help a person in short term in tiding over financial requirements as well as stress. Bridging loans are used in many fields like real estate sector, mortgage sector etc. There are basically two type of bridging loans.
These are closing bridging loans and the open bridging loans. Closed bridging loans are available only to those persons who have carried out the sale relating to their existing properties and there are many lenders that offer these loans quite happily. Other type of bridging loans is the open bridging loan. In this type of loan, a person takes loan for financing the real estate or home, when existing property has not been put on sale in the market. There are many types of questions asked by lender at time of providing the bridging loan so that it can ensure the repayment of the bridging loan. Before we go further, it is very important for a person to understand that bridging loans are provided at much higher interest rate than traditional loans and thus, are an expensive affair.
There are some requirements that have to be completed by a person for getting a bridging loan. For example, if a person is taking the bridging loan for the purpose of buying new property by way of mortgage, the lender would ask the person to submit a proof regarding active marketing efforts undertaken by the person for selling other property. The lender would also ask the person about the way in which he shall meet the interest payments and how the person shall be exiting his position in bridging loan. The lender would also expect a person to go for mortgage offer relating to new property and its details would have to be provided. In case of an open bridging loan, most of the lenders would provide a time period of 12 months and then they would negotiate with the person about other factors. But the person is required to repay the interest in regular manner and the market price of the property should not have been collapsed.
As said above also, bridging loans are provided on high interest rates. In United Kingdom, most of the lenders charge rate at bridging loans 2-25% higher than Bank of England Interest Rate. Apart from higher interest rates, lenders also charge arrangement fee for providing bridging loans and this rate vary from 0.5-1.5% of the value of amount obtained under bridging loan. A person would find some lenders that charge lower interest rates but higher arrangement fee. It is up to a person how he calculates the overall cost of loan and goes for the bridging loan. For example, if a person thinks that he shall be able to sell the home or other property quickly, he must choose a lender that has a low arrangement fee. If time taken for selling the property is high, it is better to choose a lender with lower interest rates.
Getting bridging loans
Getting bridging loans is not a problem as a person would find many lenders providing these loans. Let us discuss this with respect to United Kingdom. There are many people that take bridging loans as an alternative to two concurrent mortgages for short periods and do not mind paying high interests. A person can easily approach banks and other specialist lenders for getting bridging loan. It has been generally observed that a person is able to get bridging loans from these sources but loan amount provided is restricted to 70% of the value of mortgage. Most of the high street banks in United Kingdom are charging interest rate at 1% over the Lloyds TSB and 0.5% arrangement fee if the loan is a closed bridging loan. In case, the loan is an open bridging loan, the lenders are charging 2% over the Lloyds TSB rate and the arrangement fee is 1%. A person would also find lenders that are providing bridging loans for the purpose of making renovations before a person moves into the home. In such cases, it is better if a person takes a mortgage loan rather than bridging loan as mortgage loans are available at lower interest rates. Before any person approaches any lender for the bridging loan, he must consider some steps. First of all, if renting is a cheaper option, bridging loans should not be availed. Second, a person must shop for some lenders in an area for getting the best deal. Third, no bridging loan should be availed without checking the arrangement fee or the redemption charges. Last, a person should aim to repay the bridging loan taken within a time period of 6 months.
MortgageSorter is a source that can be contacted for getting bridging loan in United Kingdom. This source is located at Moneysorter Ltd, 123 Park Lane, Middlesex HA2 8NN.
Hkow it really works
Let us now discuss how bridging loan is provided. If a person has taken a bridging loan for buying any property, as most of people do, bridging loan is generally secured by means of mortgage of above property. If there is a second mortgage on the property that is being sold by a person, it is taken out. The value of the property decides about the valuation of the related properties. Though a lender generally provides up to 65% of the property value less existing mortgage, a person can get more by shopping around. Generally, it has been observed that a person is able to borrow from 25000 to 500000 pound sterling as bridging loan in United Kingdom.
The loan process is initiated by a person filling in the application for the bridging loan. Once application is submitted, the property is valued. It normally takes 72 hours to value the property. There are some sources that require a person to deposit sum for the property valuation. In United Kingdom, fee for the valuation of property is generally realized at 200 pound sterling. The entire loan process takes from 7-10 days
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