Bridging loans are perfect options for short-term cash needs. But there are a few uncertainties we must be aware of before applying for a bridge loan. After going through these points below about Bridge Loans, you’ll be able to make the right decision on what you want to do next.
Timescale
Whether we are expecting to sell a property or refinancing onto a cheaper loan, we must always keep in mind the timescales. A bridge loan is set for a specific period of up to twelve months. Often, we go for the shortest repayment period to pay less in interest or receive the optimal net loan. There are usually no charges for early repayment.
If the loan term comes to an end and we haven’t fulfilled our payments, we will be in default. Such a lapse is penalized financially. Failure to repay within the time stated on the contract results in a penalty and extra interest. Delays are widespread in property sales. It is also true in refinancing. Such delays can cause issues, so and we must be cautious.
Exit Strategy
Another risk of defaulting payment is property repossession by the lender. As per repossession law, an asset or property can be repossessed if the credit contract explicitly allows it. On top of that, we risk damaging our credit history. To reduce the risks, we need a very sound exit strategy. This is a plan showing when and how we are going to repay the bridging finance. Suppose we take the refinance route. It is good to submit a practical application. If we demonstrate our confidence, most lenders do not hesitate to give out the money. The best way to demonstrate confidence is by having a viable and secure exit strategy. Otherwise, they reject loan applications without a clear repayment plan. We can additionally take assistance from a professional real estate business that might also deal with loan refinances. Such companies can provide advice online and provide in-depth information can application procedure. We could get further details through websites such as https://reali.com/loan-refinance/ or others like this.
Since we are avoiding high interest, we shouldn’t borrow for longer terms than necessary. In some instances, the lender charges renewal fees when the agreed term winds up. A good exit strategy must have a backup option and should be ascertained. An example of the exit strategy is the sale of a property. To figure out the realistic price we can expect from the sale proceed, we need to do a lot of homework. This includes researching similar properties in the neighborhood that have been sold and for how much. A valuation is necessary here. It is worth considering how much a property would yield on a quick sale.
Costs
Because of the short-term nature and risks involved, bridging loan rates are relatively higher than other loans. As stated above, we must prove our ability to pay the loan. Interest is only charged until repayment. Besides, there are extra fees we must take into considerations:
- Administration fee: Chargeable on anyone applying bridge financing
- Legal costs: A legal solicitor comes in to set up the facility. Their charges depend on the lender
- Facility and arrangement fee: May cost up to 2% of the loan amount and included in the loan facility
- Valuation: A formal valuation report is necessary security for the sale of a property. The valuation fee goes to the surveyor and usually is the only upfront charge. The property must be assessed before issuance of a bridge loan
- Broker fees: brokers can arrange a bridging loan, and so they charge a fee
- Exit fee: Some lenders ask for an exit fee to redeem the loan
A wise borrower looks into the risks and costs of bridge financing. It pays to seek expert financial advice to understand the pros and cons of taking a bridging loan. A financial advisor is the best professional to take us step by step through the loan application process. Their guidance is still viable when repaying ad using the bridge loan. Let us gather as many details as possible to make informed decisions. It is worth looking into it, and this won’t be too difficult considering most of them use a special source to help them market themselves, meaning the best ones are only a click away. Make sure you compare them and then enquire about your situation, this might just be the best bet for you.
