Bridge loans are short term loans that help you to bridge the gaps of financing. For instance, you are looking to buy a new home but own a place already. You wish to sell that place to finance your new home. But you are failing to get a buyer for your old place. Here, comes in the utility of a bridge capital home loan. This is a kind of a short-term loan service that can help you financially till you get a buyer.
When can we make use of a bridge loan?
- If you eye a permanent cash flow in a few months but need immediate funds for investment, you may opt for a bridge loan.
- You can also use bridge capital loans for real estate if you are wishing to invest in real estate. However, you must know that these are short term loan services. So, you must have a permanent source of financing as well.
- You may use these loan services to bridge in the gap of your permanent financing.
- You may also apply for bridge capital home loan if you are waiting to sell your old property. This loan can help you fill in your financial gap while your old property gets a buyer.
- So, the bridge loans are basically used to bridge in the gap of financing. In cases when you need immediate financing, but it is not yet available, you can opt for bridge loans.
How does a bridge loan work?
- Bridge loans help bridge the gap of financing and are also termed as gap financing.
- These loans are also termed as swing loans or interim financing.
- Bridge loans are basically short-term loan services.
- Bridge loans are granted typically for one year’s time.
- However, these loans are usually coupled with a higher rate of interest.
- Also, if you have an impending mortgage loan, it is advisable for you to not opt for bridge loan.
- This is because, you will be burdened with two payments simultaneously.
What are the types of bridge loans?
Close bridging loan
This loan is available for a definite period. The lender is more likely to approve of this loan. This is because the lender maintains a definitive belief of loan repayment.
Open bridging loan
Open bridging loans have a chance of having higher interest rates. This is because the loan repayment methods are usually undetermined initially in this case. This loan is generally opted by borrowers who are not sure as in when their finance would be available.
First charge bridging loan
The lender of such a loan becomes the first claimant of a property. In a case of default, this loan’s lender becomes the first one to receive back his money. The other lender will receive it only after that. This loan offers lower interest rates.
Second charge bridging loans
Unlike the case in first charge bridging loans, these loans are usually coupled with higher loan interests. This is because there are higher chances of defaults in this case. The second charge lender comes as the second priority in case of a default. However, both the first charge and the second charge lender enjoy similar repossession rights.