The bridge loan is nothing if not aptly named; it functions as a solution to cash flow issues between the span of time it takes to list a home and to sell it. As such, it definitely falls into the short-term loan category employed almost exclusively for the real estate industry. Let’s see what options exist for this specific type of funding.
Bridge Loan Operation
There are really only a couple of options here, and the first one consists of the financing company tendering you a loan that will serve to bridge the gap between whatever your present loan balance is and the bulk of the value (usually up to 80%) of the property in question. This money is then employed to pay the downpayment for the second property without affecting the initial mortgage you took out. The loan maturity date is when you sell the first property and can pay off the bridge loan.
The second option is to combine the mortgages, which enables the extraction of a big loan worth 80% of your property (at the most; the amount varies). Once you recompense the mortgage company for this loan, you can use the other loan to make the necessary downpayment for the secondary property.
Expected Borrowing Rates on Bridge Loans
Right out of the gate, you should know that the interest rates are higher than for a traditional loan. Bridge loans are, after all, short-term loans, which virtually guarantee the standard 2% hike in interest that is attendant with their disbursement. The financing company cannot benefit from the administration fees that usually pile up over the long lifetime of conventional loans, necessitating the larger upfront interest charge.
Additionally, you will have to pay closing costs that include a handful of fees that are standard in the real estate sector. Despite all of these, bridge loans are definitely a viable short-term loan option if you’re cash-strapped. To start exploring bridge loans and other commercial real estate funding solutions, contact SV Financial Services today.