Are you thinking about taking out a bridging loan, or are you curious about what this is? This applies to the home loan, when you move house and you do not immediately succeed in selling the old house. You want to avoid running out of a home temporarily, which means there is a good chance that you will first buy a new home and then sell the old one. You can use a bridging loan to finance everything, something we’ll go into more deeply in this article.
With the bridging loan, you take out a loan for the equity you expect from your old home, as it were, after the sale has been completed. You can add the bridging loan to the home loan that you take out for the new home in order to be able to pay the total costs. You then actually have two different loans, of which you can repay the bridging loan with the surplus value from the sale of the old house. The costs for the bridging loan are generally relatively low, because there is collateral that minimizes the risk.
Loan for the equity of the old house
Do you want to finance a new home? Then you can use the proceeds from an old house, although there is a good chance that a part of the mortgage will rest on it. We use an example to clarify the application of the bridging loan. Suppose you own a home with a value of $ 200,000, which still has a mortgage of $ 150,000. There is then a capital gain of $ 50,000. If you have seen another house for $ 275,000, you can finance it with the equity of $ 50,000 from the old house, in addition to a new mortgage of $ 225,000 (assuming that the bank wants to provide it).
If you have not yet sold the old house, the bank can already provide you with a mortgage. However, you only want to take out this mortgage for $ 225,000, for the rest of the financing you want to use the equity from the old house. However, this money will only become available once you have managed to sell the house. You can use a bridging loan to temporarily finance the equity, to immediately repay this amount as soon as the equity is released from the old home.
Take out bridging loan
You can take out the bridging loan to ensure that you still have the opportunity to fully finance the new home, without the equity being available at the moment. In that respect, the amount of the bridging loan is always equal to the expected equity. Of course, the ultimate equity depends on the selling price of the house, but it is often possible to make a reasonable estimate.
You can take out the bridging loan by talking to the bank about the current situation and indicating that you want to use the equity of the old house. In many cases you will take out a bridging loan for a period of 6 months, up to a maximum of 2 years. This gives you quite some time to sell the property, without having to take out another form of loan or apply for a loan in the meantime. If you have not sold the house after 2 years, you should speak to the mortgage lender. It is often possible to extend the bridging loan for a while, especially when the market situation is disappointing and it is not easy to sell the old house quickly.
Mortgage and bridging loan
When you use a bridging loan, there are actually several loans. First of all, you have a home loan with the bank, in most cases with a long term. It is possible to make use of a removal scheme and to take the old mortgage with you to the new home. In certain cases, you will want to increase or decrease the mortgage, depending on the value of the new home you have in mind. In addition to the home loan, however, you take out the bridging loan separately.
This credit is separate from the mortgage, because it is a more temporary form of financing, which you use to advance the costs of the purchase of the house, as it were. There are no redemptions on the bridging loan, since you will use the equity to pay off the credit in 1x. As soon as you have sold the old house, the equity is released from this. You can then use this money to pay off the bridging loan and ensure that only the mortgage will remain to finance your home.
Costs for the bridging loan
The costs for the bridging loan are generally not too bad, because there is collateral in the form of the house you purchase. As with the mortgage itself, this means that the bank has a fairly low risk. This means that you pay a relatively competitive interest. On the other hand, keep in mind that the bridging loan ensures that a loan-to-value ratio is created that is higher than if you only use the mortgage to finance the house. This may mean that you pay a higher interest rate during the term of the bridging loan, which will decrease when the equity is released from the old home.
For the bridging loan, it is possible to make use of the tax benefits available, which will result in an even lower net interest rate. In this case, of course, it must be a bridging loan for the main residence and you must meet a number of other restrictive conditions. If this is the case, you can take out the bridging loan in an advantageous manner and you can provide timely financing for the new home you want to occupy in a financially interesting way.