Bridging Loan Overview

A bridge loan offers a practical solution for temporary borrowing. Our guide provides insights into the mechanics of bridge loans, helping you determine if this option suits your needs.

Utilizing a bridge loan can be an effective way to secure short-term funds, especially when you aim to purchase a new home before selling your current one. However, it is crucial to understand the details and weigh the advantages and disadvantages before proceeding with an application.

A bridge loan, often referred to as a "bridging loan," is a short-term borrowing arrangement designed to provide funds until you secure the necessary financing, typically used to facilitate the purchase of a new home while your current property is still on the market. Like other secured loans, bridge loans are backed by a valuable asset—typically your property. This means that if you encounter difficulties in meeting your loan obligations, your home could be at risk.

First Charge and Second Charge

When you take out a bridging loan, a "charge" is placed on your property, establishing the repayment order for lenders in the event of non-repayment. If you already have an existing mortgage, the bridging loan becomes a second charge. If you do not have an existing mortgage, the bridging loan is classified as a first charge.

Fixed or Variable Interest Rates

Bridging loan interest rates can be either fixed or variable. A fixed rate guarantees a consistent charge, ensuring your monthly repayments remain constant throughout the loan term. Conversely, a variable rate means that both the interest rate and your monthly repayment amount can fluctuate. Fixed rates may be slightly more expensive, but they provide stability.

Open Bridge Loan

An open bridge loan does not have a specific repayment deadline, though it is typically expected to be paid off within a year. This type of loan is suitable if you have identified a property you wish to purchase but have not yet sold your current home.

Closed Bridge Loan

A closed bridge loan has a predetermined repayment date, making it suitable for situations where you are in the process of selling a property and awaiting completion to secure funds for your new home. Usually, this type of loan is needed for a short borrowing period.