Bridging loan: purchasing a property before completing the sale of the existing property

Bridging loan: purchasing a property before completing the sale of the existing property

 
You are a homeowner and you plan to have a new home? You want to buy a new property before completing the sale of your existing property? Bridging loan could be a solution.
 
Bridging loan is an advance given by the bank  for the value of the property you plan to sell – your current home – to let you buy a new house or apartment. The capital that you borrow with this bridging loan is repaid in a lump sum once you have sold your existing property.
 
Bridging loans can be  with or without supplementary financing. If the value of the new property is inferior to the value of your current property, you do not need supplementary financing. But if the value of the new property is greater than the value of your existing property, you’ll have to solicit another loan. The financing will thus combine two loans: a bridge loan and a supplementary loan.

60 to 90 % loan for 1 – maximum 2 years
 
The objective of the bridging loan is to help you bridge the gap between the purchase of your new property and the sale of your existing one. For example: you have found a home of your dreams and you do not want to miss this opportunity waiting to sell your actual property.
 
What is the disadvantage of this formula? First of all, you should know that the bank will never lend you the total value of the property for sale. The loan varies in general between 60 and 70 % of the estimated value. If the sale is advancing and you already have a preliminary sale agreement (“compromis de vente” in French), the bank may lend up to 80 or 90 % of the property value. Please note: if you already have a loan on the property for sale, the amount of the bridging loan will be reduced by this amount. Another important issue: a bridging loan has a very short duration. The banks often limit it to 1-2 years.
 
How to make the right choice of your bridging loan?
 
Pay attention to the loan servicing implied by a bridging loan. Of course, you do not have to reimburse the capital every month, but your monthly payment will not be neutral as you’ll have to pay interest and insurance premium. If you also have a back-to-back loan, this monthly payment will be added to the monthly payment of your complementary loan. This will make you bear heavy charges during a few months. What is a solution if you cannot bear these charges? Total relief for interest: the interest is added to the loan and shall be paid when your existing property is sold. Thus, monthly payments will only include the insurance premium. This possibility has one disadvantage: the loan becomes more expensive.
 
Before taking this possibility please consider the bank charges as well. For the back-to-back loans, some banks charge their commission twice. Also, please pay attention to the proposed guarantee.  Mortgage is more expensive than a Home Loan pledge. Choose if the bank agrees: promise to provide pledged assets – you promise a mortgage on your property if the bank asks you to do so. This solution does not entail any supplementary charges.

Have a professional make an estimate of your property!
 
As you see, with the bridging loan it is best to sell quickly and well. The shorter is the bridging loan, the less expensive it will be to you. This is when you need a true professional. CENTURY 21 experts will determine the fair price of your existing property and will help you to sell on best terms. 
 
 
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