In response to these dire economic times, businesses are beginning to increasingly use bridging loans to relocate to new premises, or for short term cash flow that they need in order to keep their business afloat. New policies developed by banking institutions have prevented people from re-mortgaging, hence getting a bridging loan, until they have owned the property for six months or more. This has lead to higher costs due to extending the term of the expensive short term loans.
Six Month Bridging Loans
A six month bridge loan enables people who only need the loan for a short amount of time to switch to a traditional mortgage without having to pay extra interest by being forced to keep the loan for longer than they need to.
Many times, investors use these types of loans in order to get the cash that is needed to finance another purchase. Oftentimes, these purchases are at auctions. If an individual needs to have cash in hand in order to make an auction purchase, but needs time to set up a traditional mortgage, a six month bridge loan can be use to “bridge” the two transactions together. sometimes, that loan would be for a year, but sometimes it would be for a period of only a couple of weeks. The cost of interest reflects the short term period of the loan, and since property must be leveraged as a surety for the loan, the consequences of not paying the loan back, or paying late, can be very severe.
Six month bridge loans were created for customers, taking into account the new six month restrictions. Today, bridging loans are available with lower interest rates than in the past. They also come with the available option to extend the loan to cover a six month period. This enables the homeowner to have the peace of mind that they won’t be assessed penalty fees or other charges in the interim of waiting for traditional financing.
Bridging Loan – Points
• As long as you have enough equity in your home to pay all of the fees, a bridge loan is the perfect option for people who do make enough money to pay two mortgages
• For people that do have enough income to pay both mortgages, the additional cost of interest and refinancing fees often outweighs the cost of paying two mortgages for a couple of months
• Typically, bridging loans are best suited for places where houses do not stay on the market for longer than 90 days.
Bridge loans require two different sets of fees, including two closing fees. There are many benefits to using bridge loans, including the fact that you can use them to purchase a home with almost any type of loan structure, whether this be a fixed rate or adjustable rate mortgage.
Bridging Loans are Best When….
• You need to move or relocate before you have sold your home.
• When you need to use the equity in your home to buy another.
• When you can’t qualify for another loan until your existing house is sold.
• If you are having a house built that requires that you put forth a “contingency fee”, and you don’t have the funds.
• If you simply don’t want to tap into your savings or liquidate resources in order to make a down payment on a new home
In certain cases where investors are buying a renovation property, the mortgage company may not want to lend on the property until it has been renovated. In these cases, bridge loans or property development finance can be used to the investors advantage in order to renovate the property, and bring it up to standard. People who are moving into properties that need substantial building works are now able to use a bridging loan in order to give them the time they need to do this work, and then get a mortgage on the property from their preferred lending institution. It is a good point to keep in mind that a bridging loan is short term, and therefore, they could be as much as a half percent or one percent higher than current 30 year fixed rates.
All things considered, bridging loans that are used appropriately, while understanding the advantages and disadvantages, could benefit investor and homeowner alike.
Bridging Loans: News
Securing a Small Business Bridging Loan
Many small business owners rely on small business funding to pay for their start-up costs and their initial operating costs. A small business bridging loan can be used to pay rents, to pay for business supplies, marketing, and even salary expenses when your revenues are low.
Bridging Finance on Buy to Let
A client approached us who had an outstanding mortgage of £200,000 on a villa in Spain, the villa was worth £210,000. The bank were recalling its debts due to the weakened Spanish economy and offered the client a short settlement opportunity to pay £160,000 to clear the mortgage on the villa. This is a classic example of when bridging finance should be used. The lend was unusual, but time critical.
Greenfield Capital Bridging Loans
Greenfield Capital is located in the heart of Birmingham and perfectly placed to service the Midlands and the UK. Greenfield Capital was born out of a requirement for common sense underwriting in bridging, a need for excellent service and integrity in the short term finance market
John Yates Managing Director of Greenfield Capital has 12 years commercial and residential property funding experience. John was responsible for managing the secured lending department of a high street bank and brings a wealth of experience in property underwriting.