Bridging Loan Rates Explained
What are bridging loan rates?
For those new to the term, bridging loans (also known as bridge loan financing) help you to literally ‘bridge the gap’ between times when finance isn’t readily available. Taking out a bridging loan can be a fantastic option for those who are, for example, looking to buy their dream home and can’t wait until their current home has sold. In many situations, bridging loans can be a lifesaver.
Interest rates are higher than standard loans and mortgages because they are a short-term loan instead of a long-term one. Fortunately for many, the rates at which bridging loans cost borrowers is lower than ever due to stiff competition among lenders.
How are bridging loan rates calculated?
Many factors affect the kind of bridge loan rates you could get from a lender. We’ve tried to include them all below. Lenders look at the loan compared to the value of the security you give (e.g. the value, condition and location of the house), your credit history, your income and the overall return they will receive.
The ‘loan to value’ (LTV) is especially important. If you want to take out a bridging loan for a house purchase, the loan will be calculated to the value of a property you currently own. Some lenders will not give a bridge loan for a property that is in a poor state of repair, those that will are likely to charge a higher premium for it. Some lenders are more likely to give security on a property that is closer to London or give more favourable rates based on the properties proximity to the capital city.
Lenders also assess a borrowers credit history and perceived ability to afford the monthly repayments of the bridge loan. A high reliable income and good credit history are naturally more attractive to lenders, and better borrowing rates are likely to reflect that.
Poor credit history or a lower-income will not necessarily exclude applicants from being granted a bridging loan. Some lenders offer the opportunity for interest to be paid when the loan is redeemed, which is helpful for bad credit bridging loans. This is an excellent option for people who need money to make improvements to a property, which will increase the sale value of the home.
When are bridging loans due to be paid back?
From the time you first seek to take out the loan, you should know when you are going to pay it back. If paying back your bridge loan depends on the sale of a property, then you must be aware of some factors. These include (but are not limited to) how long the marketing process will take, evidence of reasonable end value, the existence of potential buyers and how quickly the purchase process will take place.
Some bridging loans require the payment of interest monthly, with the remainder of the loan paid at the end. Other bridge loans add interest onto the final loan, with the initial loan plus the interest payable at the end.
Contact one of our financial experts today, we are happy to provide you with answers to all of your questions and suggest the best product to suit your situation.