Bridging Loans Explained

Oct 2, 2014   //   by Keith McDonald   //   Business Guides, Lending Guide  //  Comments Off on Bridging Loans Explained

If you need to act quickly to secure a loan, or you only wish to borrow for a short period, it may be difficult to secure a commercial loan or mortgage to suit your needs. So why not consider a bridging loan?

What is a Bridging Loan?

A bridging loan is a short term funding option which can be arranged much more quickly than a standard commercial loan. Bridging loans are useful for funding short-term projects, or for bridging the gap between securing a property and arranging a longer-term commercial mortgage.

How Much Can I Borrow?

Bridging lenders can offer up to a maximum of about 80% loan-to-value against a property. However, this will be against a short-term 90-day valuation of the property, which is likely to be lower than the open market rate, so this may impact the amount you can borrow.

What is the Cost of a Bridging Loan?

The average monthly rate for a bridging loan can vary from about 0.75% to 2% per month – that’s around 9% to 24% per year.

A lender will typically add an arrangement fee worth around 1-2% of the loan, while you’ll also face valuation costs, conveyance costs and stamp duty (if the loan is for a purchase).

Costs you will face:

  • Arrangement Fee.
  • Valuation Costs.
  • Conveyancing Costs.
  • Stamp Duty (if for a purchase).

What are the Advantages of a Bridging Loan?

While the cost of a bridging loan may seem off-putting, it could prove cost-effective, if you take into account the timescale and possible redemption penalties for longer loans.

Bridging loans could also allow you to act quickly in ways that other forms of finance do not, so you’ll have to decide whether you’re ready to pay a premium for access to the money you need at short notice.

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