Bridging Loan for Beginners: Is It Right for You?

Recently updated on February 21st, 2023 at 12:23 pm

If you are in the market for a new home and need to borrow money to make your purchase, you may want to consider a bridging loan. Bridging loans are short-term mortgages that can be a helpful option if you are not able to get a traditional mortgage or if you need the money immediately.

Read on to understand more about how bridging loans work, as well as the pros and cons of bridging loans.

How bridging loans work

A bridging loan is a type of short-term loan that can be used to finance the purchase of a property before your current home is sold. Bridging loans are typically used by people who are unable to get a traditional mortgage or who need the money quickly. The loan is usually repaid within 12 months, although it can be extended to 24 months or more, depending on the lender.

Benefits of bridging loans

For many borrowers, a bridging loan can be a highly beneficial alternative. For many, the main advantage of a bridging loan is that you can buy a property before selling your current home. Other benefits of bridging loans are that they are usually approved quickly, typically require minimal paperwork and have flexible terms.

How to get the best deal on a bridging loan

Bridging loans can be structured in a few different ways. Commonly, you only pay the interest on the loan each month. Alternatively, the interest can be repaid at the end of the loan. As always, the rates, terms and repayment schedule varies from lender to lender.

So, how can you get the best deal on a bridging loan? The amount you’re able to borrow is directly correlated with the amount of equity you have in your home.

The first step is to shop around and compare different products and lenders. A finance broker is well-placed to help you with this process. It’s important to make sure you understand the fees that apply, as well as the minimum and maximum loan amounts that each lender offers. It is also important to consider the length for which you will need the loan.

It’s important to also make sure you understand all of the terms and conditions before signing, and most importantly, that you can comfortably repay the loan. Again, a finance broker can help you navigate this process. Equally, be sure to reach out to your lender for clarification.

Different types of bridging loans

Closed bridging loans and open bridging loans are two types of bridging loans. Closed bridging loans have a fixed interest rate and a set repayment date, whilst open bridging loans have a variable interest rate and no set repayment date.

Which type of bridging loan is better?

There is no one-size-fits-all answer to this question. The type of bridging loan that is best for you will depend on your circumstances. Your finance broker can help you work out which loan is most suitable for your requirements

When a bridging loan is the best option for you

As mentioned above, there is no ‘one-size-fits-all’ answer to this question. A bridging loan is increasingly preferred by borrowers who seek access to cash in the following circumstances:

You need to buy a property before selling your current home.
You are unable to get a traditional mortgage.
You need the money immediately.

How to apply for a bridging loan

The first step when applying for a bridging loan is to speak to your finance broker, or the lender you’ve selected, who will assess your situation and determine whether you qualify for a bridging loan. Next, fill out an application and provide supporting documentation.

At Mango Mortgages, we have simplified our bridging loan application process. You can enquire by phone or email. You can also apply online here.

Things to should consider before you take out a bridging loan

Before you take out a bridging loan, make sure that you have considered the following:

Whether you can afford the monthly repayments.
The interest rate and fees associated with the loan.
The time you need the loan.
Whether you are comfortable with the risks involved.

Risks associated with bridging loans

As with all types of loans, there are some risks associated with bridging loans. When considering a bridging loan, be sure you clearly understand all loan terms, including if you miss a payment or if you need to exit the loan early.

What happens when you are unable to pay your bridging loan?

The consequences of failure to pay your loan can be serious. Most bridging loans are secured against your property, which means that in the worst case scenario, the lender could take possession of your home if you default on the loan.

If you are struggling to make payments on your bridging loan, contact your lender as soon as possible. They may be able to offer a repayment plan or other assistance.

Key takeaway

A bridging loan may be a good option for you if you need to purchase a new property before your current one sells. However, it is important to understand the risks and costs involved with these loans before you decide whether or not they are right for you.

If you are interested in learning more about short-term bridging loans or want to apply for one, contact Mango Mortgages today. We love helping borrowers obtain the finance needed to buy their dream home.

Mango Credit

Yanis Derums is the Founder and Director of Mango Credit– a leading private lender specialising in bridging loans for personal use and business short term loans for commercial and/ or investment purposes. Yanis has extensive experience with financial analysis, credit assessment, product structuring, and general business management