A bridging loan could be a viable choice if you need a short-term loan. Such loans are typically used to “bridge” a temporary gap in finances that occurs when properties are bought and sold, but completion dates cannot be set for the same time. Before taking out a bridging loan, first, consider these factors.
A Secure Exit Strategy
Since bridging loans are only intended for short-term borrowing, it’s essential to have a viable and secure exit strategy before taking out such a loan. Bridging loan often have higher monthly interest fees than long-term loans. You don’t want to borrow for longer than is needed. An exit strategy must be a particular decision, and it’s worth having a plan B.
A regular loan exit strategy is selling of a property. First, make sure what price can realistically be expected for your property by having a valuation done or checking out other homes in the area that were recently sold.
Another well-liked exit strategy is re-financing. This could be utilized where a bridging loan from BFS loans is taken out for purchasing a derelict property to be sold off once refurbishments were carried out and the property qualifies as a mortgage product. This could be used for repaying the bridge.
Buying A Bargain Property And Then Selling It
You may have seen a property that is up for sale for a bargain price for legitimate reasons. Your aim is to buy it and resell it for a quick profit. Before doing this, ensure that it is, in fact, a bargain and there are no hidden reasons for the property being sold at a reduced value. You may not be able to sell it at a profit or have to spend extra money to raise the value before selling it. Also, remember the six-month rule. It’s possible that you won’t be able to sell the property for at least six months as a result of the purchasers not being able to secure a mortgage on it.
The Total Cost Of The Loan
There are several costs linked to taking out a bridging loan, particularly the interest which are higher than other finance options. Bridging must only be considered as a short-term choice. For most bridging loans, the interest is included, which means there are no monthly repayments. The interest is fully paid at the end of the term.
Other Fees That Must Be Taken Into Consideration Are:
· Facility/Arrangement fee
· Legal fees
· Valuation costs
· Administration fee
· Broker fees
· Exit fee
Are There Any Alternatives To Think About?
Even though bridging offers an excellent choice in terms of speed and cost, you don’t have a solid exit strategy in place; then it would be better for you to start considering other options. Purchasing an investment property, for instance, may present you with an opportunity for a buy to let mortgage arrangement. Or a secured loan may be a viable option if you’re looking to renovate your house as the installments can be spread across a more extended repayment period.