Bridging Loan

What is a bridging loan?

A Bridging Loan usually refers to a short term loan extended to someone to enable them to purchase a new house, despite not having the sale proceeds of an existing house.

If the sale of the existing house has been contracted (i.e. contracts have been signed and exchanged) then the bridging loan is known as a closed bridging loan. If not, it is known as an open-ended bridging loan.

Bridging loans can be exceptionally dangerous because the interest accrued in the time between property sales can quickly add up, meaning you could have to pay back a lot more than you originally borrowed.

Generally any bridging loan lender will want proof that your current property is on the market and usually will ask to see a copy of the mortgage offer for the new property. As bridging loans are often for substantial amounts, they also need to know that you can cover the interest payments and how you will settle the loan if the sale falls through.

Normally a bridging loan will be limited to a 12 month period. For obvious reasons, bridging loans should be avoided as they can be financially crippling, especially if open-ended. Always take professional advice before considering a bridging loan.

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