Bridging Loans For House Purchase: Quick Overview

Bridging loans for house purchase presuppose short-term mortgage, and are designed to help homeowners buy new houses while still owing their previous homes. On the whole, this is by far not the most lucrative option, as interest rates are higher in comparison to long-term loans. However, if you need to buy a house quickly, and you cannot expect to sell your current property within the required time frame, bridging loans offer a sort of loophole to getting rid of your previous mortgage plan. So, how exactly does the whole thing works?.

Overview

Bridging loans for house purchase give buyers an opportunity to acquire property while still owning their previous houses / apartments. In other words, for a short time, homeowners will have two mortgages at once. Bridging loan creates a sort of gap between purchasing a new a new house and selling the existing property. As soon as the owners sell their old house, they can cash out their mortgage debts and make an initial payment for the new property.

Note, though, that this is a short-term opportunity, so do not think that it will give much time to find the best deal for your old home. Bridging loans for house purchase generally have a timespan of 2 to 6 months. Yet, the most common agreement gives buyers 3-4 months tops.

In addition, an average rate of bridging loans for house purchase is 1-1.5% – 12-18% a year – which is significantly higher in comparison to long-term mortgage plans. Plus, some contracts also presuppose a fee for closing the loan – as a rule 1% of total property value.

Who can benefit from a bridging loan?

For some buyers, this could be the only option possible. If, for example, you find the house of your dreams, and its current owner insists on a quick payment, you might be forced to get a bridging loan due to a number of reasons. First of all, you cannot expect to sell you house quickly –especially if just yesterday you haven’t thought of selling at all. Next, no bank will authorize a long-term loan if you already have one mortgage, and if your family income is too low or insecure to have two mortgages at once. Long-term goals, in general, are designed for people with high, stable, and very predictable incomes.

Other options

You might have already guessed that there are other options, and long-term goal is one of them. To put it simply, bridging loan should not be the first thing that pops into your head – in the ideal world, at least. Because of the high interest rates and short timespan on paying off the loan, there is a huge risk of running into heavy debts.

Even though bridging loans are gaining rapid popularity in the UK, it is still preferable to wait, sell you house / apartment, and get a long-term value loan instead. After all, buying a new house is associated with additional expenses – you might need to buy new furniture , remodel your living room or dining room , etc. So, if there is a chance to take things slow – take them slow.