The bridge loan – or purchase-sale – makes it possible to finance the purchase of your future home without waiting to have sold the old one, in the case of a change of main residence for example. It thus avoids having to pay two monthly loan payments but also having to give up a property for which you would have had a crush. Banking institutions then offer several types of financial arrangements to be able to carry out the operation. MAIF enlightens you on the subject.
What is the principle of a bridging loan?
Your family is growing, you are changing town, or simply want a little change in your life? You have finally found the house of your dreams, you do not want it to escape you? You want to commit without delay but your current home is on sale and you have not yet found a potential buyer: this is where the concept of bridging loan comes in.
What are the conditions for obtaining a bridging loan?
As you will have understood, the bridging loan is aimed at people who are already owners. The bridging loan was designed by the banks to respond to the problem of the cash flow gap between the time of sale and that of purchase. The objective is to obtain a substantial sum of money to acquire a property before having sold your previous home.
It is a short-term credit – we also speak of bridging credit – an advance offered by the bank to help you pay for your future accommodation . You therefore benefit from a longer period to sell your old homewithout being forced to lower your initial selling price in a hurry, and without going into heavy debt. The bridge loan also makes it possible to make the junction between the moment of sale and purchase to avoid a possible rental during the transition period and successive moves.
How does a bridging loan work?
A bridging loan will be granted to you for a short period, generally one year, renewable once. You therefore have a maximum of two years to sell your old home .
The amount of the bridging loan usually represents 60 to 80% of the estimated value of the property you own.and put up for sale, which after weighting must be greater than the outstanding capital. The amount of capital remaining due will then be subtracted if the property is the subject of a current credit. This allows you to calculate the amount to borrow to acquire your new property. It also allows banks to take into account the possibility that you do not sell your old home and to agree to lower the selling price originally desired. This amount is freely determined by the banks according to the dynamism of the real estate market.
Do not try to overestimate the amount of your property. Banks can establish their own estimate of your accommodation before establishing the amount of the bridging loan.
What is the cost of a bridging loan?
If you have already found the ideal buyer and signed a sales agreement, you will obtain better conditions and you will obtain a larger sum of money because the risks of not making the sale are quite low. On the contrary, if you have not been able to sell your property for a while, the bank will be more suspicious.
The rate of a bridging loan
The interest rates for bridging loans are generally a little higher than those for conventional home loans. In 2020, the average rate for a bridging loan is between 1.45% and 1.75% .
In addition, the bridging loan works in the same way as a conventional loan. However, you benefit from an absence of prepayment allowances (IRA), this is the whole objective of this type of loan. As a borrower, until the sale and during the first months, you only repay the interest and the insurance premium of the bridging loan. The cost varies according to the duration of the bridging loan: the longer the duration, the higher the interest and the insurance. The capital, meanwhile, will be repaid at the end of the loan and when the initial property is sold. This is called the partial deductible (or deferred), less onerous than the total deductible where you repay capital and interest at the end of the loan. In both cases, prepayment is free of penalties.
What are the different types of bridging loans? How do they work?
A dry bridging loan is granted when the sale of the initial property fully covers the amount of the new acquisition . This is the case, for example, when buying a smaller home, or moving from Paris to the provinces. It is therefore simply an advance that the bank grants you and you do not have to take out an additional loan. You, the borrower, will only repay the interest or even the insurance until the sale of your old home.
The acquisition bridge loan or backed bridge loan
If you’re moving bigger or further into town, chances are the property you want to buy will cost more than the one you want to sell. The bridging loan is then associated with a conventional bank loan or depreciable agreement which finances the remaining sum. You repay two monthly payments, which can weigh heavily on your budget. It is therefore necessary to take your income into account and make a bridging loan simulation.
The repurchase bridge loan
Finally, note that a bridging loan can be bought by a bank in order to smooth the monthly payments at a more advantageous rate . This type of bridging loan is useful when the maximum debt ratio is reached by the single monthly payment of the bridging loan. In the case of a refund, extending the duration of the loan makes it possible to reduce the monthly payment, but this solution is very expensive.
