Allowing you to finance the purchase of a new home without waiting for the sale of your current property, the bridging loan avoids having to pay two monthly loan payments simultaneously. However, it is necessary to be vigilant because if this loan has many advantages, it is not without risk.
How to limit the risks of a bridging loan?
First advantage of the bridging loan, it allows, as part of a purchase-resale project, to finance the acquisition of your future home without having to wait for your current home to be sold . The bridging loan makes it possible to respond to the problem of the cash flow gap between the moment of sale and that of purchase. Indeed, it allows you to pay only one mortgage at a time. Thanks to the bridging loan, the owner has a longer period to sell the accommodation he currently occupies, while avoiding missing out on a great real estate opportunity to purchase. This prevents him from having to revise his price downwards to find a buyer more quickly. On the other hand,the bridge loan also makes it possible to avoid a possible rental during the transition period as well as successive moves: the seller moves only once his current property has been sold.
What are the main risks of the bridging loan?
The main risk of a bridging loan is not finding a buyer before the end of the loan. Indeed, even if the property is not sold, the bank can completely demand the repayment of the bridging loan on the scheduled date . The lending institution can offer the seller to convert his bridging loan into a classic mortgage, but the monthly payments to be made can be very high. The bridging loan is therefore not recommended if the accommodation is not attractive(poor general condition, little sought-after location, etc.) and therefore difficult to sell. In this situation, it is preferable to wait for the actual sale of your current home to consider a new acquisition. Another disadvantage of the bridging loan, the interest rates are often much higher than for a conventional mortgage.
To limit the risks attached to a bridging loan, it is preferable to sell your home quickly. However, this can be complicated in certain sectors that are not very sought after. In this case, it is wise to opt for a bridging loan-repurchase or a bridging loan purchase-resale to carry out the transaction more serenely. These relatively unknown formulas make it possible to avoid paying too high monthly payments. The bridge-repurchase or purchase-resale loan offers the borrower the possibility of having his current mortgage repurchased by another bank. The latter will then offer him a new credit incorporating the remaining monthly payments due from the old credit.as well as the necessary financing for the future accommodation. The bridge-repurchase loan allows the borrower to benefit from a single monthly payment instead of two, which is not the case with a traditional bridge loan. In addition, the monthly payments may be adjusted depending on the resale of the property.
Bridge loan: how does it work exactly?
The bridge loan is generally granted for a short period, from 12 to 24 months. Its amount represents 50 to 80% of the estimated value of the housing offered for sale , depending on the probability that the housing will be sold quickly. The greater this probability, the greater the amount that can be borrowed. The rates of bridging loans are higher than those of conventional mortgages. However, if the borrower has already signed his sales agreement, he will often obtain better loan conditions. With a bridging loan, the borrower only reimburses the interest and his insurance premium. The capital will be repaid at the end of the loan. Note that prepayment is free of penalties.
There are different types of bridging loans. A dry bridging loan is granted when the sale of the current property fully covers the amount of the new acquisition. To benefit from it, the price of the future home must therefore be equal to or lower than the sale price of the current home. If the value of the new home is higher than that of the old one, the bridging loan is associated with a conventional bank loan or depreciable agreement which finances the remaining sum. The borrower must therefore repay the interest on the bridging loan and the installments of the conventional loan. Finally, a bridging loan with “total deductible” is granted if the total monthly maturity is greater than the borrower’s debt capacity.until the sale of his property. It is a bridging loan with no monthly payment since the capital and interest are repaid at the end of the loan.
How to get a bridging loan?
To obtain a bridging loan, you must first set up a bridging loan file with different lending institutions . These examine the profile and finances of the borrower and also take into account the amount he can expect to obtain from the sale of his current home to decide whether or not to grant the bridge loan. To obtain a bridging loan, the conditions to be met are similar to those required by banks for a classic mortgage: professional stability, regular income, savings capacity, sound financial management, etc. To build his file, the borrower will have to provide various documents, in particular his payslips, his last tax notices or his bank statements.The time required to obtain a bridging loan is similar to that of a conventional loan , i.e. between 15 and 45 working days from the filing of the file. It is therefore advisable to start compiling your file before signing the sales agreement.
