Imagine the situation when you have found your ideal home after a long search, and your offer has been accepted in the auction. But, there is just one snag - you can't get shot of your old residence quickly enough to arrange the money. In such a situation, the much awaited deal may have a risk of falling through. Loans designed to bridge the financial gap between two successive real estate deals, is the only way to keep the deal on track.
It is a fact that these loans are expensive and are usually considered to be a last resort to make the deal successful. But, this loan can tide you over in the short term, and the extra expense may save you from losing money already spent in the purchase process. Besides this, you are also relieved from the mental stress.
Depending upon the nature of the deal and terms and conditions, bridging loans for home can be divided into the 'closed' bridge and the 'open' bridge. The closed bridge is only available to home-buyers who have already exchanged on the sale of their existing home. As very few sales fall through after exchange, lenders are happy to offer closed-bridge financing. These loan plans generally charge lower rate of interest compared to the second one. An 'open' bridge is taken out by buyers who have found their ideal property, but may not have put their existing home in the market for sale. In such situation, the lender asks lots of questions and wants supporting information and documents also. Equity in your existing property is the most vital factor in the loan approval.
All bridging loans come with high interest rates. The charged interest rate is generally 2% to 2.5% more than the Bank of England rate. The lender may charge an arrangement fee ranging from 0.5% to 1.5% of the value of the loan. If you do a good research on the Internet, you will find that some lenders charge lower rates of interest and higher arrangement fees and vice versa. So, you should calculate the effective rate of interest and try to get a cost effective loan.
There are many specialist lenders in the UK financial market who are faster at issuing the cash. The borrowers have to pay nothing for the privilege. Deciding whether to go for a lower rate of interest or a lower arrangement fee depends on your circumstances and online research. When you are confident about the quick sale of your old home, it is better to pick a bridging loan with a lower arrangement fee.
