![]() Due to the short-term nature of a bridging loan, an exit strategy will need to be proposed during the application process, detailing a plan of how the loan will be repaid at the end of the loan. With a standard mortgage, the principal value is paid off throughout the duration of the loan, however with a bridging loan an exit strategy is required to map out a plan to pay off the loan. Typically, a bridging loan’s terms could offer a loan to value rate of up to 80%, offering increased flexibility with financing. ![]() There is often higher loan to value lending available via a bridging loan compared with a standard mortgage. However, a consideration is that if the interest repayment is postponed, the total amount borrowed must include the interest total due. This option can provide significant cost savings during the term of the loan compared to a standard mortgage, where this option is not usually available. If this option is selected, the interest would be payable at the end of the bridging loan term, along with the principal amount. The repayment of interest can be delayed on bridging loans until the end of the loan period. In this scenario, the ‘upward chain’ of the purchase could be salvaged by the use of a bridging loan. One example of where the speed of approval can be crucial is when a property chain breaks down by a buyer pulling out. ![]() This speed in the approval process can provide flexibility and aid decision making for purchasers. Often a lender’s decision on a bridging loan application will be received within a few days, which is substantially quicker than the response from a standard mortgage application. Most standard mortgages have a repayment duration of up to 35 years, whereas a bridging loan usually will typically have repayment terms of between 12 and 24 months. The short-term nature of a bridging loan, that provides the flexibility required in certain circumstances is the major difference between a standard mortgage. The result is that the client owns multiple properties while further transactions are proceeding.Īpply for a Bridging Loan What are the Differences Between a Bridging Loan and Standard Mortgage? What is a Bridging Loan?Ī bridging loan, also known as gap finance, is the financial term commonly used to describe a method of short term secured finance that funds a property purchase whilst the sale of other assets is still in progress.Ī bridging loan enables the property transaction to take place, without delay by applying the equity owned within a current property as a deposit towards another property. Throughout this article, we will explore bridging loans in more detail, including running through a few examples of how this type of loan can be used in various scenarios. Bridging loans can provide a solution to secure that perfect property quickly before there has been an opportunity to sell other property.
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