Here’s a common situation experienced by some homeowners, and you may be one of them. You want to buy a new home, and they only way you can do that is by selling your old home and then use the money from the sale of the current home to pay for the new home you want. This may look easy, right? However, this situation can also become complicated because in reality, it actually takes quite some time to sell a home.
To solve this problem, smart lenders have come up with a home loan package called bridging loans or bridging finance.
What Is A Bridging Loan?
Well, there are two (2) approaches to Bridging Loans.
With the first approach, the lender approves the bridging loan application of the borrower or homeowner but gets both the properties – the current home and the new home that will be bought, as security. The homeowner, therefore, has one loan, which is called the Peak Debt. The borrower is given 6 to 12 months to sell his “old” home. The 6 to 12 months is called the bridging period, thus the name of the loan.
The conditions affecting the bridging period differs from lender to lender. Some lenders require the borrowers for repayments during the bridging period. These lenders capitalize repayments by simply adding the interest on the loan to the total loan amount. This in effect increases the Peak Debt on a monthly basis. So, once the “old” home is sold, the proceeds of the sale is then applied to the overall Peak Debt. What is left of the balance is then called as End Debt or Final Mortgage. This End Debt or Final Mortgage is usually transferred to a regular mortgage and will be paid similar to a regular mortgage with the new home used as security.
Most lenders recommend that repayments be made during the bridging period so that the interest and overall Peak Debt will not increase.
For the second approach, the homeowner gets a second loan for the new home he is buying. This means that homeowner will have to pay for two loans – the current mortgage on the current home and the new loan for the new home. The home owner is then given 12 months to sell the current home and he has to make repayments on both properties during the bridging period. When the “old” property is finally sold, the original mortgage is fully settled first, and then whatever is left of the proceeds is applied to the new mortgage.
How are repayments calculated through the bridging period?
As the sale of the current home is on going, the minimum repayments are usually calculated on an ‘interest-only’ basis. Occasionally, and depending on the lender, the homeowner or borrower may be able to capitalize all his repayments until the time the sale is completed. However, this alternative can increase the Peak Debt and in effect increase also the overall interest the borrower has to pay.
A word of advice to those who want to avail of bridging loans: carefully study all the options available before making your final decision. Lastly, talk to a reliable mortgage broker so you will know how to correctly calculate the bridging period.
Siena Lombardi is a journalist for AccessRx.com, an online facilitator for prescription medications since 1998. Where consumers can order Cialis online no prescription securely from the convenience of their home or office. Watch accessrx.com videos on Youtube to get educated on purchasing safe medications online.