MOVING HOME
So, you're getting on the property ladder
When planning to move home, securing the necessary funds to purchase a new property before selling your current one can be challenging. In such scenarios, a bridging loan serves as a short-term financing solution, typically lasting up to 12 months, though some lenders may offer extended terms based on individual circumstances. This type of loan provides immediate funds, enabling you to act swiftly in competitive housing markets and secure your desired property without waiting for your existing home to sell.
Key Features of Bridging Loans:
Arrangement and Exit Fees: Borrowers are usually required to pay an arrangement fee upon securing the loan. Additionally, some lenders may impose an exit fee when the loan is repaid, though this varies by lender.
Lenders: A diverse range of financial institutions, such as banks, private investors, and specialized finance companies, offer tailored funding solutions to meet the unique needs of each project.
Interest Payment Options: Interest on bridging loans is typically charged monthly. Borrowers often have the flexibility to choose how they pay this interest:
- Monthly Payments: Paying the interest each month without adding it to the loan balance.
- Rolled-Up Interest: Deferring interest payments until the end of the loan term, at which point the accumulated interest is paid in full alongside the principal.
- Retained Interest: Borrowing an amount that includes the interest for a predetermined period, with the total repaid at the end of the term.
The choice between these options depends on your financial situation and the specific terms offered by the lender.
Considerations:
Higher Interest Rates: Due to the short-term nature and associated risks, bridging loans often come with higher interest rates compared to traditional mortgages.
Repayment Strategy: It's crucial to have a clear exit strategy, such as the sale of your existing property or securing long-term financing, to ensure the bridging loan can be repaid on time.
Bridging loans serve as a valuable tool for individuals needing quick access to funds during the home-moving process. However, it's essential to thoroughly assess the associated costs and have a solid repayment plan in place before proceeding.
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