Bridging loans - Loans that make you homeowner
By: Anaya Erika
Two independent financial transactions may not take place simultaneously. If you are relying on the sale proceeds of one transaction to complete another then it becomes a serious matter. This situation is very much prevalent in housing market where a homeowner wants to sell his old home and buy a new one out of the proceeds of the sale of his home. This situation demands that either both the transactions concur or the sale of your old home takes place prior to buying another home. In all practicality, it is seldom possible; you may find a suitable home to purchase even before you have put your old home on sale.
To meet the time gap between two independent transactions, there are loans available in the market. These are basically short-term borrowings that can be effected within a short period of time. Moving to new a house till the old house is sold is very much possible with the help of these short-term loans.
Bridging loans, as they are often called with due respect to their functionality, take control of your financial requirements for not more than one year. In the meantime, you are required to realise money by selling your old home and pay back to the lender along with the interest payable on loan.
Bridging loans are a perfect solution to buy a new home pending the sale of your old home. These loans can of two types – open bridge and closed bridge. If you have already entered into a contract for the sale of your old home, then it is a case for closed bridge. The lender knows that sale money would be realised within a specific time frame and there is hardly any risk in lending money for buying a new home. Another case arises when you are yet to put your old home for sale but your search for a new home has been completed. In this case, lenders normally put a condition that loan would be given for not more than 12 months or so.
Bridging loans are given against the security of your new home. Being short-term loans, these qualify for high interest rates that may exceed the base rate of interest by 3-8 per cent depending upon the longevity of loan and the amount to be borrowed. Before you take bridging loans, do not forget to apply the universal rule of shopping – shop around and compare the like products available in the market.
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