What Are Bridge Loans?

Bridge loans are short term loans that are taken out for a duration of 2 weeks to 3 years awaiting the arrangement of bigger and more permanent financing. This interim financing is meant to help an individual or company until they obtain another form of financing. Money acquired as a result of this particular form of financing is used to pay back the bridge loan. Bridge loans are typically more expensive than other forms of financing in an attempt to compensate for their risk. Therefore, they have a higher rate of interest. Bridge loan lenders usually require real property as collateral, usually in the range of 50-75% LTV.

 

A bridge loan is used for the purchase of commercial real estate to close on property as quickly as possible and to retrieve houses from foreclosure, etc. Bridge loans are paid back when the purchased properties are sold, refinanced by traditional lenders or when a property is completed. The biggest advantage of these loans is the speed and the fact that they can be obtained with ease. Bridge loans can be gotten with minimal paperwork and lenient guidelines. The interest rates of a bridge loan range from 12 to 15 percent for a one year term. The loan can either be closed or open.

An open bridge loan does not have a fixed date of when you are expected to pay back. This poses a greater risk to the lenders. As a result, this loan tends to attract a higher rate of interest than its counterpart. However, a certain date is set for when the regular payments must start. A closed loan on the other hand has a fixed date by which the loan needs to have been repaid. Closed bridge loans have lower rates of interest. If you have a pressing need and you cannot wait for a conventional loan, you should take out this loan for quick cash.
This loan facilitates a speedy investment. When you opt for it, you can make payments on your mortgage and use the remainder to make advance payment when purchasing a new house. The loan is mostly used by developers who want to carry on with projects during the approval process. This is advantageous since most banks do not offer real estate loans. The reason for this is that such loans are risky and speculative in nature. You might have to jump through several hoops to get yourself a real estate loan. To avoid this, you should consider taking out a bridge loan before you get a permanent alternative.

 

Before you choose any particular lender, you should consider several options. This way, you will be able to get a lender with the lowest rates of interest so that you do not have to pay through the nose. Get a bridge loan today!

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