What Is Bridging Financing?
Bridging financing is basically a short term loan with coverage for your current home and the new home that you are planning to buy. The payments schedule is interest-based and depends on the total time taken to buy your new property and selling your current home. This time duration is termed as the bridging period.
On the off chance that your current home takes some time to sell, it is recommended to keep making the monthly payments to help keep your total loan amount at the lowest possible value. It also helps to prevent a massive repayments buildup at the end.
Bridging finance is one of the trickiest forms of finance, so it is advisable to get assistance from a professional mortgage advice specialist. A mortgage specialist can help you choose the right options and understand the terms and conditions of this type of financing.
How Does Bridge Financing Work?
The total loan in bridge financing comprises of the debt on your current home and the value of the property that you are planning to buy, minus the total expected value of your current home. The payable amount is referred to as principal and most of the times you will only have to pay back the interest on that principal amount. Interest compounding will, however, continue to take effect on a monthly basis and it will be added to your account balance. Once your current home is sold, the remainder of the principal amount will be transferred as mortgage on your new home.
We recommend an equity amount of at least 50% of your current home’s value, before going for bridge financing. This will help you get good interest rates without having to pay a heap ton of interest under your finance contract. Selling your home as early as possible will help avoid paying interest on both of your properties, your current home and the property that you are planning to buy.
What Are The Pros Of Bridge Financing?
With bridge financing, you can easily buy a new home without going through the hassle of lining up the settlement dates on both of the deals. You can easily sell your existing home and shift into the new one at the time of your convenience. Bridge financing works best when you need a loan for building your new home and don’t want to move out of your existing home first.
What Are The Risks Associated With Bridge Financing?
Overestimating the value of your current home is the biggest risk in bridge financing. You may end up with a higher loan amount if your current home’s selling price turns out to be not enough to cover the total cost of the home you are looking to buy.
A longer bridging period also affects the total loan amount since the interest rates will increase if your existing home isn’t sold within the stipulated bridging period.
Found A Reliable Finance Associate Yet?
We at Hank Zarihs Associates take great pride in being the go-to source for any advice and help in all kinds of development and investment funding cases. Through our years of experience and expertise we will help you present your contract is such a way that it best suits your needs. Our pre-contract research helps us suggest an appropriate loan lender for your project, from our list of more than 60 associated lenders. Our lenders include all types of financing organizations, from private and foreign banks to pension and property funds.