Here we give a brief overview of what bridging loans are and when they are used.
Loan are normally arranged for a short period of time (1 day to 12 months) and often paid off from other funds, such as a mortgage when they can be arranged.
Bridging Loans have been used to fund properties bought at Auction for years due to the flexibility offered by lenders; they can arrange for funds to be available in 24 hours, unlike a mortgage which may take 4 – 8 weeks to arrange.
The majority of loans are granted on the basis that there is sufficient equity in the property to be used as security and lenders often make sure that there is a clear method of repayment. The repayment method could be from refinancing, from the sale of the property or other method of repayment. Generally lenders will require at least 25% (they lend up to 75% of the value of a property) equity to remain in the property after their loan is secured.
Bridging loans are often used in residential transactions when the sale of a main residence or other property has been delayed and the new purchase must complete before the sale of the existing property. A bridging loan may be used in this situation because A) the money is required quickly B) a second residential mortgage may be difficult to obtain if a residential mortgage is already outstanding on the property being sold.
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