All about a Bridge Mortgage

A bridge mortgage loan is short term finance in cases where you purchase your new home before selling your current one. Bridge loans are designed to finance the time difference between the sale of the old property and the purchase of the new one. This type of a mortgage is extremely useful for those who would like to buy a new property but are unable to sell their present one to generate cash for the purchase. It is always ideal to wait for the sale of one property before buying the next, but sometimes this is not possible. So by having a bridge loan you basically have two mortgages to payback at the same time. For this reason, it is good to keep in mind, that bridge loans are only a short term option.

Things to consider

The main reason why people opt for a bridge mortgage is because it is a choice between getting the house of your dreams and losing it. Often new houses have a limited time period on them, and if you do not settle, they can be sold to other buyers who may even offer better prices. The term of a bridge loan is usually between six to twelve months. They have high interest rates because the repayment of the bridge loan is completely dependent on the sale of your current property. In most cases, the borrower has to make interest only payments after six months if the old house has not been sold.

Although a bridge loan is often the best option, it is an expensive one. You should be sure of your financial capabilities before taking this type of a loan. You should ensure your ability to make the payments in case your existing property does not sell in time. You should also consider how important buying the second home is, because of the high interest rates on bridge mortgages. It is always better to get advice from a financial adviser before applying for a bridge mortgage.

Bridge loan facts

Bridge mortgage loans can be granted on a first or second basis. A closed bridging loan is that which has a fixed term. A fixed term is possible when you are aware of the buying and selling dates of a property. An open bridging mortgage is that which has no fixed term towards the contract. These loans are given to both companies and individuals. People with good credit histories, self-employed people and even those with a credit rating that is not so great can avail these mortgages.

The properties that are mortgaged include commercial, semi-commercial, residential and even land. They can be fully developed or partially developed, in need of renovation or in the best condition. This kind of chain-breaking mortgage became common in markets that were fast moving and optimistic. It also increased the demand for buyers who wanted to prevent losing their desired property. A popular feature of a bridge mortgage is that the borrower can repay the capital amount any time. This cuts down the monthly payments and the outstanding balance as well.