There is a lot to consider before choosing to use bridge finance. You need to be sure that it is the best option for you. To help you decide, we outline what you need to think about when applying for a bridging loan.
Be clear on what is involved
Having the right knowledge is key to understanding everything involved in applying for a fast bridging loan, especially if you are new to this form of financing. And that includes being clear on how bridging loans work and the potential fees as well as the interest you will have to pay.
Getting professional advice is always recommended, particularly if your situation is not so straightforward. Not only can a bridging loan specialist answer all your questions regarding what such loans entail, but they can also help you quickly find the best quote for your bridge finance needs.
Do you have a repayment strategy?
Knowing exactly how you will pay off your bridging loan is the essential place to start when considering an application. You have three main ways of repaying a bridging loan – funds from the sale of your property, use money that you are due but have not yet received or a refinance arrangement on your current home.
Whichever way you choose to repay a bridging loan, there are some essential considerations to be made:
Interest rates – due to the short-term nature of bridging loans, the applied interest rates tend to be high compared to longer-term mortgages. You need to be confident that you can pay off the total loan, including the interest rates and any associated fees.
The repayment term – with higher interest rates that are charged monthly, it can be tempting to opt for the shortest repayment plan so that you can minimise the total amount of interest charged. You also need to factor in any potential delays in your funds, such as the sale of your property taking longer than anticipated. Any delays can mean you don’t have the necessary funds at the end of the agreed repayment term for your bridging loan, leading to additional default penalties.
Refinance agreement – if you are opting to refinance on a property, your bridging loan repayment plan should be realistic and based on the success of your refinance application. To mitigate any risk, it is a good idea to get an indication of an offer from your mortgage lender before you progress with your bridging loan application.
Always choose a reputable provider
Before submitting a bridging loan application, you should always choose a loan provider with the best reputation. This will give you the chance to ask all your questions and be clear on the costs involved in the application.
Ultimately, the expertise, skills, and experience of a reputable bridging loan provider will prove invaluable and ensure the whole process runs as smoothly and quickly as possible for all concerned.
