What is a Bridge Loan

What is a Bridge Loan?

Are you looking for a quick and simple way to use your existing home to finance the purchase of a new property? If so, you may be interested in learning about what a Bridge Loan can do for you.

If you have never heard of this type of loan before, what you need to know is that this is a short-term loan, usually lasting from six to twelve months, that you take out against your existing home to get the money you need to buy a new one.

You should be aware that the interest rate is normally about 2 percent above other loans and that closing costs can be equally high.

The Best Time to Take Out a Bridge Loan A bridge loan will normally be taken out when you are looking to make the move to a new home but have not yet managed to sell your existing property. In simple terms, this type of loan is designed to bridge the gap between these two events. It’s a loan that will give you the money you need to make sure that you can raise the amount of money needed to buy your new home.

How This Type of Loan Works There are two ways in which this type of loan can be structured. You can arrange for a loan that completely pays off all your liens on your current property. You can also get a second type that you can use as a loan on top of your existing liens.

If you choose the first type of loan, the money you receive will pay off all your existing liens, thus enabling you to use whatever is left over as a down payment on your new home. If you choose the second type, it would basically fulfill the same function as a second or third mortgage.

In this case, it would be used as a down payment for your new property.

A Certain Amount of Risk May Be Involved Before you make your final decision as to whether to seek out this type of loan, you should be aware that a certain amount of risk may be involved. As the borrower in this arrangement, you will basically be taking on a new loan that will come with a significantly higher rate of interest. You have no guarantee that your current property will sell during the life of this loan.

An advantage here is that you normally will not need to pay interest for the remaining months if you do sell your home before the loan expires.

But you will need to be on the lookout for any prepayment penalties that might crop up if you manage to pay the loan off too quickly.

Where to Get This Type of Loan Your best bet to get a good deal on this type of loan will be with a single lender that provides both short- and long-term loans. This way, you can usually get better terms, as well as a more secure arrangement, than you would from two separate banks or private lenders.

Give Jimmy Vercellino a call and let’s see if this is the right type of loan for you. We’ll make sure you fully understand the terms of the deal before you agree to it.