Buying a home is a rite of passage; it’s the point where someone’s hard work pays off, and he can finally settle down with his family and build wealth for the future. However, things happen, and sometimes people need to move. Sometimes it’s because they find jobs elsewhere, and sometimes it’s because they want a change of scenery. Either way, procuring another property may be impossible if they can’t get rid of their old home before moving day. All of the work they’ve put into building equity and bettering their lives can go away in an instant if a housing deal falls through at the last minute. That’s what bridge loans exist to prevent, but it takes a bit of searching to get the best deal.
What a Bridge Loan Entails
When someone is in a position where he needs to unload an old home in order to hold onto a new one, he has two options: He can take out a second mortgage, or he can get a bridge loan. Both options carry a lot of risk; it’s not a good idea to take on a second mortgage or a bridge loan just to sidestep the property chain.
Getting a bridge loan is appropriate when mortgage offers have fallen through or when a buyer had been found for an old residence but backed out at the last minute. Bridge loans are also the best option when a property is ill-suited for a traditional mortgage. That usually applies to older buildings that need a lot of renovation in order to be brought up to code, so in plain language, it means that bridge loans are ideal for fixer-upper houses and office buildings.
Bridging Loans versus Mortgages
A good bridge loan can provide as much or more money than a traditional mortgage; some offers go as high as £1,000,000. The difference lies in the terms. Bridging loans don’t have a set duration, and the borrower has a lot of freedom when it comes to setting the terms if he picks the right company to borrow from. Bridge loans are typically used to cover short-term expenses over the course of six months to a year, but borrowers can negotiate for longer terms in some cases.
Bridge loans are interest only, and the APR on a bridge loan is about the same as it is on a regular home loan. Bridge loans with three or four percent APR are the best deals on the market. When APR is higher than that, borrowers generally pay two percent more in interest than they would on a normal home loan, and the opening and closing costs can be quite a bit higher depending on the lender. The higher rates might still be worth it for some people as it’s an easy way to get instant cash when credit is difficult to acquire.
Getting Better Deals
Borrowers can usually get better APR if they use the same lender for their bridge loan and their mortgage. Lenders need customers to make any profit, and if they can keep their customers happy with competitive rates and instant cash, they will.
Those who may need a bridge loan in the future should guard their credit. A better credit score equals better rates, and it also means that lenders will be more likely to get on board with the idea of granting a bridge loan. Aside from that, the best thing that prospective borrowers can do is get quotes from as many lenders as possible before signing anything. Ideally, they can make lenders compete for their business. It won’t always work, but taking the lowest quote of the bunch and sending it to every other prospective lender can sometimes result in a bidding war, and that greatly benefits borrowers.
Bridge loans are a way for people to preserve their dreams. When everything else has fallen through, it lets them keep their new house while they unload their old one. This is exactly what economic prosperity promises to those within first world countries, and with a well-chosen bridge loan, anything is possible.
[Tina Ratcliff is a guest writer for www.netloans.co.uk where you can read more about Net Loans.]
