Whenever taking into consideration a bridging loan (a short-term loan, up until a longer-term solution is available), the leading 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 present a safer choice than commercial), whether the applicant has excellent credit etc.
A Typical Bridging Application
A widespread 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 current property is in the marketplace, sold and exchanged but hasn’t yet completed.
This will be considered as minimal risk for the lender given that they will be 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 considered to be a higher risk of certain payment in the agreed upon period and therefore could necessitate a more substantial interest rate from the lender.
The Bank of England Base Rate might influence bridging loan rates and depend on circumstances can range 0.65 % and 1.5 % per month.
A bridging loan runs typically 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.
- An arrangement fee of 1 – 2 %.
- No exit charge (on some products).
- No minimum term, for example, loans could be paid off after a day.
Using your own home to raise money
If you own your own home and you have good personal income, it may be cheaper to look into a remortgage or secured loan even if you have a bad credit history. If you do this, you have to be careful with tax implications for your personal and corporate taxes.