Firstly, you need to understand what a bridging loan is. Bridging Finance is a specialist short-term loan that is designed to give you quick access to temporary funds. For example, you might be purchasing a new property but haven’t yet sold your current property. Rather than breaking the chain, you could take bridging finance which will be repaid when your property is sold.
Other uses for Bridging finance could be for a property that needs refurbishing before a traditional mortgage can be sourced, or for investors looking to purchase at auction.
WARNING: your property could be repossessed if you are unable to exit the bridge within the bridging term. Bridging finance is extremely risky and will not be suitable for the majority of people.
Open Ended Bridge
Bridging Finance is designed to be short-term, this normally means the loans typically last for 6 months. Some lenders will offer longer terms such as 12 months or even 24 months. It is the loan term that makes Bridging finance risky as many lenders impose heavy fines if you do not exit the Bridge within the loan term and need to extend it. The worst-case scenario would be the lender repossessing the property because you have failed to exit the term, this isn’t uncommon!
Bridging loans with a fixed term are “Closed Bridging Loans”. In contrast, a Bridging Loan without a set end date is an “Open Bridging Loan”. The costs relating to an Open Ended Bridge are higher than a Closed Bridge but you don’t run the risk of failing the repayment date. Open ended bridging loans do not have a fixed end date. If your home doesn’t sell on time or your refurbishment project runs over you don’t need to worry about the bridging coming to an end.
Take Expert Advice
The consequences of Bridging Finance can be severe and should not be taken lightly. If you are considering Bridging Finance you should speak to a qualified mortgage advisor such as the Hello Mortgage Specialist Lending team.