Bridging Loan – to Meet Your Short-term Needs

A bridging loan is the loan available to an individual till a longer-term financing is secured. It can also be know as a swing loan, a bridging loan helps you to tide over your current financial obligations. Bridging loans are a short-term lending solution, these can range from anywhere between 2 weeks to 3 years. The funding could be required for a variety of reasons including financing business activities, selling an existing home to buy another property, finance buying of land, etc.

To buy a new house before selling an existing house, one can opt for a home equity loan or seek a bridging loan to make the down payment. A home equity loan is definitely cheaper. A bridging loan, however, is more helpful in situations when the borrower’s existing home is not yet sold. The funds from the loan are used to secure the down payment for the new home.

This kind of a loan is typically paid back after the home is sold. The advantages for the borrower are:

The buyer can buy a new home on the market without any restrictions whatsoever.

The buyer does not have to make any monthly payments for a period of few months.

The interest rates for bridging loansare higher. This loan is available for a predetermined time frame. They are non-standard loans. The borrower usually pays monthly interest. Rates typically start at 0.75% a month and goes up to 1% to 1.5 percent.

Finance experts are of the opinion that demand for bridging loans have increased in the midst of the credit crunch. It is a good idea to use this type of a loan when you already have a buyer ready for your existing home. Without having a proper and realistic exit strategy in hand, paying off an expensive loan can be an ordeal.

This entry was posted on Tuesday, September 25th, 2012 at 4:00 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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