Things To Consider Before Getting A Bridge Loan
February 11, 2022
Before deciding whether or not a bridge loan makes sense for you, it is important to explore all of the variables and do your homework. This process is critical to help make sure that a bridge loan is in fact the best solution for you. In an effort to help guide those out there who may be considering these types of loans, we will discuss a few key factors worth considering about bridge loans below.
Before you even apply for a bridge loan, it is essential that you fully understand everything involved and this includes learning how bridge loans work as well as considering all of the potential fees for this type of financing. By definition, bridge loans are intended and designed to ‘bridge’ the short-term financial needs relating to a property or land purchase, but as with any loan, not all applications are straightforward and not all bridge loans are created the same. It’s important to get the correct expert advice at the right time in order for you to understand the process more fully and help ensure you get the best quote possible based on your individual circumstances.
Since bridge loans are based on a short-term repayment plan, having a clear ‘exit strategy’ will help both you and any potential loan provider rest easier knowing that you will be likely be able to repay the loan in a timely manner based on the loans specific terms. When considering your repayment options, you should also account for the loan interest rates as well as any other fees that may be applicable, and to not just simply factor in the initial loan amount for repayment. Bridge loans are often of a short term nature so the monthly interest rates are often higher compared to longer-term traditional financing. This may mean that you will need to demonstrate to your loan provider that you can pay off the total loan in a shorter period and also have enough to cover the additional loan fees.
There are a few key ways of repaying a bridge loan on time. The first is to use funds that are due to you, but have not yet been received from the sale of a property. Second, is to re-finance your property and either pull out equity or lower your monthly interest and use the difference to payback the bridge loan on time. As well as having a clear plan to pay off the loan, the length of the payment term is also a crucial decision. It can be tempting to simply pick the shortest loan period possible to minimize the total interest you’ll have to pay with the higher interest rates, but you should also factor in any potential delays in obtaining your repayment funds. For example, selling a property can often times be prone to falling behind schedule, which could mean you don’t have all of the funds needed to repay a bridge loan when payment is due. This could result in defaulting on the loan if you’re not prepared as well as incurring additional financial penalties. Similarly, if you decide to refinance an existing property, it’s a smart move to request an offer indication from your lender before applying for or deciding on your bridging loan repayment terms.
Choose A Trustworthy Loan Provider
Taking out a bridge loan is a huge decision and utilizing the best advice available to you is important in making a well informed decision. Finding the right bridge loan provider is also critical to ensure you get the right product and all of the processing runs smoothly and on time. The factors we discussed above regarding bridge loans will hopefully assist you in accounting for all of the essentials and help make your final decision on whether or not to obtain this type of short term finance the right one for your specific financial needs.