Bridging Finance for Real Estate

Bridge loans are common in real estate. These are short term loans that are used to bridge the gap until a person or company secures permanent financing or removes an existing obligation.

So if you want to buy yourself a new home and you have not yet been able to sell your existing property, bridging finance may be helpful.

What are the benefits of bridging finance for real estate?

This loan may provide you, the home seller with more flexibility.

The loans are short-term, so you will have to repay them over 6 or 12 months. It’s always recommended to make some repayments where possible so that if you have trouble selling your current place, you will not have an additional six months of repayments added to your loan amount.

You get the relief of immediate cash flow.

You won’t have to find temporary rental accommodation while waiting to move into your new home. Instead you will have the finance you need to purchase your new home.

One of the major disadvantages of this loan is that interest rates are relatively high. This is why it’s important to know what you’re getting yourself into. You must know how your mortgage repayments are calculated during the bridging period and how much needs to be repaid.

Types of bridging finance for real estate:

• You can borrow money to pay off your existing mortgage and enough to make your desired down payment on your new house.
• You can keep your current mortgage, but borrow against the equity in your current home and use the money as the down payment on your new home. You pay the outstanding balance and accrued interest when you sell your current home.

“Bridge loans are a sensible means of financing as long as the homeowner is able to afford the loan payments and as long as the new home isn’t used as collateral to acquire the loan,” says Robert de Heer, author of Realty Bluebook, which covers real estate financing.