Bridging loans are a fantastic and convenient way to borrow money via a secured loan. But it can be confusing when seeking to understand the dynamics of a bridging loan used for a mortgage.
The majority of bridging loans cover a property or development purchase, where the buyer requires to bridge a gap between selling and buying. In simple terms, this basically means you are able to borrow the money you need to buy your new investment, without selling your current home just yet.
However, it should be taken into consideration that bridging is a fairly short-term option, to help in the process of selling your existing property, but this also makes these loans attractive in lieu of a traditional mortgage .
Looking at this more in depth, there are also certain types of bridging loans to consider, and in this guide, we are going to take a close look at bridging loans for a mortgage.
What is a mortgage bridging loan?
When it comes to a mortgage, bridging loans are essentially the bridging finance of the gap between selling and purchasing assets.
A bridge loan can provide you with temporary funds in order to purchase a new property through mortgage, whilst you are still in the process of selling an existing one.
A bridging loan for mortgage is a type of short term, asset backed finance, designed to help property purchases and developments move ahead quickly without the headaches of credit broker legal fees, consumer credit reports barring the chance to borrow, and other roadblocks to getting a mortgage.
Usually offered on terms of between 18 months or less (depending on criteria), funds can be made available within days. This makes bridging finance one of the fastest ways of accessing capital.
Plus, unlike other forms of borrowing, when you take out a bridge loan, the monthly interest is often included, meaning there are no repayments to make during the term of the loan.
Are mortgages open or closed bridge loans?
To compare bridging loans, especially when seeking a bridging loan to buy a home through mortgage, it should be understood that bridging mortgages can be complex since you’re essentially taking on two debts, but the good news is that help is available here at Bridging Options.
Our entire team offers the utmost of knowledge and dedication as we specialise in these arrangements and know exactly which lenders are best positioned to offer you with the most favourable rates.
When you are not a lender or do not understand bridge loan dynamics, speaking to a lender with the right knowledge and expertise could save you time, money and potential disappointment, as this could be the difference between finding the right lender, first time, and being rejected for the bridge loans you need.
What are the pros and cons of bridging mortgage finance?
Bridging loans tend to move quickly
When you need to borrow money quickly for a mortgage, some bridging loans can be arranged in a matter of hours, so speed is a big part of their appeal.
Bridging finance is both flexible and generous
When you are looking to borrow large sums of money of up to £250 million, and if you require flexible borrowing or re-payment plans outside of a fixed repayment date, bridging loans are the way to go.
Bridging loans come with a host of different payment options allowing you to either pay monthly, pay in full at the end of the loan term or borrow more than you actually need to cover the cost of both the loan and interest owed.
Monthly interest payments
Bridging loans can come with high rates of interest. Bridging loan rates are usually set at around 1-1.5% per month, as opposed to a mortgage repayment which is 5% APR (annually). Therefore, a bridging loan could cost you between 13-19% APR.
Secured loans with collateral
When you get a bridging loan in the form of a mortgage, the loan is secured against your property or assets, which you risk losing if you fail to repay the bridging loan.
Stringent valuation fees
There are a number of additional charges which could prove costly. These include an arrangement fee for the bridging loan set-up (1-2%), exit fee (1%), repayment fee, valuation charge and legal costs.
Am I eligible for a bridging loan mortgage?
Whether you are eligible or not depends on a few different factors, but as long as you are willing to potentially pay the rather high interest fees, you will likely be eligible for a second charge loan.
Your average mortgage can be described as a 25 year or so financial lend, to fund a property or land. 25 years is only a rough figure, as many can be longer or shorter, depending on the repayments. A mortgage is a secured loan, which will be in place until your property is paid off.
To apply for a mortgage, the process is somewhat intrusive. Mortgage lenders want to be sure you are able to afford the repayments, taking all factors of your lifestyle into consideration. Factors will include the likes of your income and all your outgoings, disposable included as well as your credit rating.
Bridging loan mortgages comes in many forms such as:
- Fixed rate
- Discounted rated
- Interest only
- Capped rate
- Standard variable rate
How to apply for mortgage bridging loan
You’ll be pleased to know that the application process for bridging is nowhere near as intrusive as a mortgage, and this is what makes it an ideal method of borrowing.
Firstly, you may want to consider if you’re eligible for a bridging loan. You may be required to have proof of a previous property to put up as collateral, so that you can prove that you are able to pay the loan back.
If you are using bridging for another reason, then again, evidence will need to be in place to show a future option of repayment, even in an open loan option.
Onto the process itself, it’s as simple as either completing a quick form online or calling up to answer some brief questions.
As well as the usual basic details, you may also be required to give the following information:
- Amount you wish to borrow
- Property price
- New purchase price
- Potential exit strategy
- Current income
After this has been processed, you should hear back within 24 hours to whether you have been successful.
The next step will only take a few weeks to send any relevant documents to prove income etc. and for your current property to be valued. After this has been completed, then the money is ready to be transferred.
Why you should speak to an expert about bridging loan mortgages?
Quite often it is said that rather than avoid risk completely, you should only take intelligent risks that reap better rewards. This is why at Bridging Options we consider each applicant on a case for case basis, ensuring that our borrowers take calculated bridging finance decisions that are guaranteed to increase their benefits whilst keeping risks to a minimum.
Why Choose Bridging Options?
At Bridging Options, we know how important it is to ensure you have gathered all the proper information to secure residential property. Bridging loans are a mainstream and common tool you can use to ensure you can move quickly into your dream home.
We regularly help clients when it comes to second charge bridging loan options, and strive to find ways to help those facing the prospect of securing financial services with affordable fees and the lowest monthly interest payments possible.
For more information on second charge loan options, rates and monthly repayments in several options, and how an open, new secured loan can help you purchase a new home through mortgage, contact us for an informal chat and a free, no obligation quote.
Experts in bridging loans, our friendly financial specialists are available for you to call or contact online today for expert advice.