The timing of selling and buying a property is almost never that simple. Dreaming of a new home, but your current one hasn’t sold yet? Perhaps you have sold your place and now looking for a temporary place to stay until the new home gets sold. These time lags become annoying, drawn-out, and costly, and sometimes people end up losing out.
Bridging loans came to the rescue – a short-term loan to help homeowners relocate without a moving break.
What Is a Bridging Loan?
One use of a bridging loan is by homeowners to cover the interim period between the sale of a property and the purchasing of a new one. A bridging loan can also be available to you if you want to buy a new home, pay for a renovation, or just keep things going while the paperwork is being done and you don’t want everything to fall apart in between.
Think of it as a financial lifeline. It’s not meant to be a permanent fixture, but rather a temporary boost that gives you the room to move when the timing is still off.
Why Homeowners Turn to Bridging Loans
- Avoiding Rental Trap
Without the option of a bridging loan, many homeowners will be forced to rent for a short period of time while awaiting the completion of their new homes. The consequence will be moving twice, having to pay rent, and storage costs. You can avoid all these inconveniences if you get a bridging loan and you may just move into your new home straight away.
- Seizing A Dream Opportunity
The real estate market is very volatile. In such a situation, when the house of your dreams hits the market, you cannot afford to wait for the sale of your present home. A bridging loan enables you to have the necessary cash on hand to act swiftly thereby you are not the one to lose out.
- Renovate Before Relocate
It is quite common that the new house is not in the best condition and that you must do some work before moving in. With a bridging loan, you can pay for the renovation, thus if you choose to, you can modernize, redecorate, or make other improvements prior to settling in.
- Be Done With Property Chains
Property chains – situations in which a group of buyers and sellers are mutually dependent and waiting for each other – are notorious for the causes of delays. Using a bridging loan, you can extract yourself from the chain and be the master of your own schedule.
What Happens With The Loan
Bridging loans are generally short-term with the duration being from a few months to a year. The idea is to pay them back when the sale of the old property occurs or when long-term financing (like a mortgage) has been secured. As they are only temporary, the interest rates are higher than those for standard mortgages on average. Nevertheless, the good thing is that there is more room for flexibility and negotiation. Besides, the approval can be shorter and the money can be made available faster than with regular lenders.
What Might One Need To Consider
Cost: The cost of a bridging loan may be higher than a mortgage, and so you should be careful when calculating the total expense.
Exit Strategy: The lenders will require to be informed about the mode of repayment that you intend to use – most probably, it would be through selling the old property or taking out another loan.
Collateral: In case of default, bridging loans are secured on properties, so be sure that you can handle the risk.
Timing: When considering this option, you should also be honest with yourself of how long the sale of your current home or the acquisition of new financing would take.
Real-Life Scenario Explained
Let’s say you found a house that fits all your needs – perfect location, bigger yard, ideal for your family. But your current home is still on the market. Without a bridging loan, you would be the one losing that house to someone else. On the other hand, if you use one, you can confirm your new home right now, move in, and pay back the loan once your old place sells.
Breaking Down The Benefits
- Move directly into your new home without the necessity of renting in between
- Quickly act when the right property is available
- Prepare for the move funding the renovations beforehand
- Get out of emotionally draining and unpredictable property chains
- Gain freedom and peace of mind during the transition
Final Consideration
Beyond being a simple money tool, bridging loans mean more to the homeowners – they stand for liberty. The freedom to move when it suits you, the freedom to be able to get the house you really want, and the freedom from the hassle of juggling property chains or temporary rentals.
