Bridging Loan is a short-term loan that can be
used, as the name suggests, to bridge the gap
and overcome a temporary financial deficit. Such
a deficit might occur during the sale of your
home or a piece of property, for instance, your
old home has not sold and you need capital to
secure your new home. In this case, you could
use a bridging loan.
A bridging loan is also thought of as a
short-term loan, or a very short-term mortgage.
This loan is secured against property, meaning
that if you do not make the payments, then the
lender will seize the property you used as
collateral to secure the loan.
Bridging loans tend to have higher interest
rates than other regular mortgages, due to the
amount of risk for the lender and other factors.
To find out what you might pay for a bridging
loan, you might seek out a bridging loan
calculator online. With a few bits of
information, you can use a bridging loan
calculator to estimate what you might pay to see
if that loan would be an affordable option for
The term of a bridging loan usually lasts about
six months, so you must be very sure of your
ability to repay the loan in that time. Again,
you can lose property if you default on this
loan. Depending on how much you owe, you could
even lose more than one piece of property. These
loans are more accessible options for people
with bad credit, or are self-employed, who
otherwise may not qualify for any other loans.
The amount of the bridging loan depends on the
value of the collateral, and the lender will
have someone do an appraisal to determine this
value. Normally the bridging loan will cover up
to 65% of the value of the collateral, less any
other amount you may owe the lender. For
example, if the collateral is worth £100,000,
the bridging loan would be about £65,000 (at 65%
the value). The percentage value will depend on
the particular lender, however, and it is
possible to get a better loan-to-value ratio.
Bridging loans usually range from £500,000 to
£5,000,000, and depending on the lender and
special circumstances, a bigger loan may be
arranged, with more time. A bridging loan has a
monthly percentage rate, which is an agreed upon
set interest rate for the duration of the loan.
If you can, you should check around for the best
interest rate. However, depending on the
circumstances, if you need a bridging loan,
likely time is an issue and you will go with the
lender who can get everything together the
quickest. If you can, though, you should try to
check out the rates of the other lenders to make
sure you aren't paying too much. Do remember
however that if you're self-employed or have
less than decent credit, you will probably end
up with a higher interest rate anyway.