A bridging loan is applied when one faces a shortage of cash in buying a property or business. It can be taken when a property is bought before it is being substituted for. A bridging loan can be used to cover the cost while the buyer still has no cash on him. These loans have a high interest rate as they are considered high risk loans. These loans should be repaid as soon as possible because in the long run they can prove to be expensive. This makes it easy to procure loan for people with a bad credit history as well as ones who are self-employed.
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Closed-End Bridging Loans
If you want to take loan for a specific period it is known as a closed-end loan. This loan is taken for an agreed length of time; the time is usually for the period that takes to sell the property you want to replace it with.
You can even use closed-end bridging loans if you are facing problems in your business regarding cash flow, and are in need of money to cover your business requirements.
Bridging Loans for Buying Property
When you want to apply for bridging loan to buy property, you need to take a mortgage on the property you plan to buy and a second mortgage on the property you plan to sell. This makes you pay double mortgage in a month. This kind of loan is granted after a positive valuation of these two properties.
Bridging loans are up to 65% of the value of the properties given. The amount that can be borrowed ranges from £25,000 to £500,000. The interest charged is of a fixed percentage. A person with a bad credit history will be required to pay more.
Usually, the borrower has no time to shop around as this loan is valued for quick availability and only taken when required urgently.Bridging Loans for Buying Property at Auction
You can also borrow money as a bridging loan when buying property at an auction. Specific auction lenders will cater to your requirements. These loans are granted without making any enquiries by the lender.
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