Bridging Loan

In the United Kingdom this kind of loan is also known as “caveat loan”. This type of loan is a short-term loan that normally is taken out for a period of 2 weeks to 3 years. Usually bridging loans have a high interest rate so they are more expensive because they have to cover the additional risk of the loan. Normally you ask for a bridge loan until you are able to obtain the next stage of financing or a permanent loan. The money you will get from the new loan normally are used to pay back the bridge loan.

Generally you ask for a Bridge loan for commercial real estate purchases in order to close quickly on a property or to take advantage of a short-term opportunity. For example: if you ask for a bridge loan on a property, you will pay back the money when the property is sold, how? Refinancing it with a traditional lender.

Here for you some bridge loans’ characteristics: these loans have normally a rate that goes from the 12 to the 15% and the loan to value rations, based on appraised value, don’t exceed the 80% for residential properties and the 65% for commercial properties.

I will tell you my experience with bridge loans. My husband and me wanted to change house but we wanted to purchase the new residence by making a down payment from the sale of our currently home. So we wanted to sell the old house only after the close of the new residence. We decided to ask for a bridge loan in order to be able to take equity of the current home and be able to pay for the new residence. In a short time we close the old house and we were able to repair the bridge loan.

I also remember that my son obtained a bridge loan in order to carry on his project while the permit he needed was approved is sought. In that occasion he had to pay a high interest rate because there was no guarantee the project will happen. When his project was fully entitled and became eligible for loans, my son asked for more conventional loans with lower-interest and for a longer term

It is easy to ask for a bridge loan and sometimes it is really useful in order to get what you want!