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Bridging loans can be the right solution for individuals or companies if they need short term financing for investments, usually real estate investments. As the name clearly shows such loans are a temporary solution until you manage to obtain money from another source or to get a long-term loan. For example, if you just found your dream house, you absolutely want to buy it but it will take a while until you manage to sell your current home, you can use this type of loan. You will be able to purchase the new property and you’ll have enough time to sell your current home for the right price. However, you need to remember that such loans shouldn’t be a first choice for individuals or businesses. They come with relatively high interest rates and unless you are certain that you will be able to repay them after a short period of time, you may be better with other finance options.

Advantages and disadvantages of bridging finance
The biggest positive of this type of loan is that it allows you to take advantage of real estate investment opportunities. Bridging lenders can generally approve loans quickly especially if you have a low Loan-to-Value. If you are certain that you’ll be able to repay it fast then it’s a good solution. However, it’s important to opt for a deal with no early repayment charges so you can clear the loan immediately when you have access to better finance.
Bridging loans also come with disadvantages. Access to such immediate finance comes at a cost: interest rates are with a few points higher then for long-term loans, there are also arrangement, valuation, legal and possibly broker fees to be paid on top so make sure you know all the costs before signing in for such a loan. Before getting such a loan it’s wise to use a broker and shop around for the best terms.

Types of bridging finance
There are two main types of bridging loans: closed bridge and opened bridge. If you already exchanged on the sale of your old property, the chances for the sale to fall through are very low. Thus, the lenders will approve a closed bridge financing for you. If you’re in this situation, it’s important to discuss two aspects with the lender: first of all, find out if the lender can offer you a no early repayment deal. Secondly, ask about mortgage options. It’s easier for you to refinance your closed bridge loan with a long-term mortgage through the same lender – less paperwork.
If you didn’t put your existing property on the market or you simply weren’t able to sell it yet, but you want to go ahead and purchase a new house, then the lender will offer you an open bridge loan. Get one only if you are sure you will be able to sell the old property in a few months and repay the high interest rates loan otherwise it will quickly become very expensive.

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