Bridging Loans: A Beginner’s Guide

Given how saturated the market has become and how things seem to be slowly moving towards another housing crisis, banks and other mainstream lenders are slowly growing more reluctant to giving out mortgage loans, or the process is beginning to take longer. Now for people who happen to be in a fix and need money quickly, they move towards bridging loans. If you are not familiar with the concept, bridging loans are considered as short-term loans which are provided to customers who are in a transitionary period, so for people who might have bought another property but still haven’t sold their previous property, a bridging loan can help them meet their settlement cost.

Bridging loans are also used by people who buy property for a short-term and those who buy them at auctions. Now bridging loans are a great option for people who aren’t able to get money through mainstream lenders, are in a fix and are in need of quick money. However, it is important to know the potential drawbacks that come with bridging loans as well. First of all, bridging loans while short-term, happen to have a very high interest rate, in fact, it can go upto 18% annually.

When you take on a bridging loan, you are then dealing with two loans, your previous mortgage loan and now your bridging loan, this can lead to a cycle of debt and in worse-case scenarios, and you can end up losing your home. So, it is important that you have an exit strategy when you are applying for a bridging loan. Another thing for you to keep in mind is that once you get a bridging loan, there is no proper guarantee that you will be able to apply or get accepted by a mainstream lender.

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