Whenever taking into consideration a bridging loan (a short term loan, up until a longer term solution is available), the main aspect is its feasibility and the most probable indicator would be the bridging loan rates.
Selecting The Best Bridging Loan
The bridging loan rate of interest is the once a month or everyday interest charged while the finance is outstanding i.e. right before it is repaid. The rate may be identified by various aspects like whether the bridging loan is closed (assured exit route for repayment of the loan) or open (less firm exit).
Various other aspects might be the size of the loan compared to the market value of the property (this is referred to as Loan to Value or LTV), the type of security (residential property is at the present time a safer choice than commercial), whether the applicant has excellent credit etc.
A Typical Bridging Application
A popular use for bridging finance is when an exemplary residence is offered for sale but a person has yet to receive the money from the sale of their existing property. In this instance a closed bridging loan is when the existing property is on the marketplace, sold and exchanged but hasn’t yet completed.
This will be considered as a minimal risk for the lender given that they will confident about being reimbursed in the arranged time span.
Supposing that the existing property is yet to sell, this will probably be viewed under the name of an open bridging loan. This form of bridging loan is viewed as a higher risk of definite payment in the agreed upon period and therefore could necessitate a more substantial interest rate from the lender.
Bridging loan rates might be influenced by the Bank of England Base Rate and depending on circumstances can possibly range 0.65 % and 1.5 % per month.
A bridging loan normally runs from 0 – 12 months and in specific scenarios, this can be extended longer.
Regular bridging loan standards are as follows:
- 0.65 – 1.5 % monthly rate of interest
- 75 % Loan to Value (LTV). This can increase to over 100 % with added security.
- Arrangement fee of 1 – 2 %.
- No exit charge (on a number of products).
- No minimum term, for example loans could be paid off after a day.