Bridge Financing is a form of short-term loan that is often used as interim financing for an individual or business while still waiting for the next stage of financing. This type of loan may also be common when home sellers experience more difficulty in unloading their homes.
What are the disadvantages?
- These loans can be risky. The new loan may come at a higher interest rate and there is also no guarantee that the old property will sell within the allotted life of the bridge loan. This may lead to you having to ask your lender for an extension on your loan term, which means you will end up paying more eventually.
- There may be prepayment penalties
- Interest rates are exceptionally high compared to conventional loans.
- You’ll need to have enough equity in your existing property to cover the purchase of your additional property
- Interest payments will accumulate until you sell your existing property
- They can be difficult to find, due to the risk involved
What are the advantages?
- Bridge financing can help you purchase a new home while waiting for your old home to sell
- The loan period can be extended up to 12 months
- It can be arranged much quicker than a mortgage
- This type of loan can work for your business needs too
- Repayments over the bridging period are usually on an interest only basis. Your principal payment is put on hold until the sale of your existing property is finalised.
- The loan is temporary, so you won’t be saddled with debt over years
- You can avoid having to move into rental accommodation while waiting for your home to sell. By getting bridge financing you are able to access funds to buy a new home.