A bridging loan is a type of loan facility which is designed to help borrowers who require finance to purchase their new home, before they have sold the existing property.
The facility works by providing finance for both the existing home and the new property, and allows the interest to generally be capitalised onto the loan – allowing you to manage the cash flow during a short period of higher than normal debt. Once the existing property is sold, the original loan is paid out and only any debt related to the new purchase remains and continues on as a standard finance loan.
During a bridging period, loans are generally interest only and do not require full monthly repayments, instead allowing the loan to have the interest placed onto the loan. It’s worth noting that making no repayment during this time can mean that your loan amount will increase at a compounding rate, so it’s best wherever possible to make as much of a repayment as possible during this time.
With any bridging facility – there is a maximum bridging period in which the original property must be sold, this is generally 6-12 months. This is one of the important considerations in picking the right lender for your bridging loan.
Not all lenders provide bridging loans and some provide far better packages for those needing this type of finance. If you would like to get advice regarding bridging loans from an experienced mortgage broker, connect with Precision Funding today.