Applying for a bridging loan is the best solution if you want to build or sell a new home, but your current home is not yet sold. This way you can borrow the amount of the value of your current home, so you don’t have to wait until the sale.
What is a bridging loan?
In the introduction to this blog we already gave away the essence of a bridging loan: with a bridging loan, the bank advances the amount that you will receive when selling your house, giving you the necessary finances to buy a new home.
In short: with a bridging loan you compensate for the cash deficit between the sale of your current home and the purchase of your new home.
Applying for a bridging loan: how does it work?
Imagine the following situation:
Value of current home: USD 250,000
Current mortgage loan: USD 200,000
Mortgage loan amount already paid: USD 150,000
Remaining amount of mortgage loan: USD 50,000
Value of new home: USD 300,000
If you currently sell your current home, you still have USD 200,000 after deducting the remaining amount from your home loan. The new home that you have in mind is worth USD 300,000. That means that you need a bridging loan of USD 200,000 and have to take out a new mortgage of USD 100,000.
The USD 200,000 of the bridging loan is immediately transferred to your account and you pay it back as soon as your current home is sold. The only thing you pay off in the period between the purchase of your new home and the sale of your current one is the interest on the bridge loan.
You can even choose to deposit the total amount of that interest together with the income from your current home after the bridge loan has ended.
What should you do if you do not get your property sold on time?
Are you unable to sell your property before the end of the bridging loan? Then you can always negotiate with your bank about an extension of the bridging loan. Unfortunately, this is always accompanied by a higher interest rate.
What if the sale of the property does not deliver the expected amount?
No worries. You can always convert the amount that you are short of into a mortgage loan . Or you can include the amount in your current mortgage loan through a refinancing.
How much can you borrow and at what interest rate?
There is actually only one rule about the amount: you can never borrow more than the estimated value of your current home. Regarding the interest rate, you should usually take into account around 2 to 4%. The average duration is 12 to 36 months.
Get the most cost-effective bridging credit
We are the ideal partner for your bridging loan, because we work together with the most current banks. This means that we have an overview of the cheapest interest rates on the market.
Let’s sit together for a person-to-person conversation. Our employees are happy to talk about your current financial situation, your expectations and the opportunities that present themselves.