Equity Release Options: Bridging loans vs remortgaging
A bridge loan or remortgage is a secured homeowner loan that allows you to release equity in a property. These types of mortgages allow you to borrow more money using the property you own as collateral.
You can remortgage to release equity or take out a bridging loan to purchase and develop a property to increase your income. Landlords and property developers can use bridging loans to turn properties around faster.
For homeowners, bridge loans are a fast way to attain short-term finance for several purposes, and they are even available if you have an outstanding mortgage. You can use them to bridge the gap between buying a new home and selling your old one if you are stuck in a property chain or have yet to find a buyer. You can use this short term loan to buy a property while you are arranging a long-term mortgage. You can borrow a large amount and also use bridging finance to renovate your home and increase the property value.
Property development also falls under the scope of this form of finance. You can use the loan for adding value to properties, but the funds can be used for other purposes such as generating an income, planning to downsize, moving quickly, or wish to buy any type of building or land.
- Closed bridging loans have a set repayment date, cheaper bridging loan rates, and more likely approval. However, there are large penalties if repayment terms are not met.
- Open bridging loans are ideal when you do not know the exact date you can repay the loan. With no set repayment date, they are great for covering legal hold-ups. However, they are more expensive because of the increased risk to the lender.
A bridging loan can be arranged for one day to eighteen months and typically have no monthly payments. They also do not have the upper age restrictions you encounter when looking to remortgage.
If you still have an income, you can remortgage and take advantage of lower interest rates. Remortgaging is better financially but takes a long time for loan approval, and repayment terms are usually set for five years or more. If remortgaging will not meet your needs, then maybe it is time to consider a bridging loan.