Many home buyers take a bridge loan thinking they will find a buyer soon for the property that they have put up for sale. Sometimes , they are unable to find a buyer for several months and may have to pay a high interest rate.
Risks in taking bridge loans
May 31st, 2008Bridge loans for housing
April 16th, 2008Bridge loans are used in real estate, when a person may wish to buy an expensive larger home by selling his or her earlier house. Selling a house usually takes a few months or longer, so the buyer will take a bridge loan to meet the short term gap. Most people take a bridge loan to get a lower interest loan with better repayment terms later.
The lender of the bridge loan will usually be protected as the Loan is related to the value of the project/property. The value of the project usually increases as the different stages of construction of the property are completed, therefore lessening the lender’s risk. These are considered risky loans and usually the lenders have to be convinced about the buyers investment.
Bridge loans
April 15th, 2008A bridge loan is a short term loan taken to ensure cash flow till a long term source of finance can be arranged. The loan may be taken by an individual or a business. The duration of the loan may vary from a few weeks to three years depending on the amount needed and the purpose of the loan.
Compared to conventional loans from banks and other financial institutions, the interest rates charged for bridge loans are usually higher. This is because the costs and other fees are covered over a shorter period of time. They are also more risky for the lender as less documentation is provided. Since the paperwork involved is less, the loans can be approved more quickly.
After a conventional loan has been approved or a new source of financing arranged, part of the funds are used to pay back the bridge loan.