subject: When to Go for a Bridge Mortgage [print this page] When to Go for a Bridge Mortgage When to Go for a Bridge Mortgage
Bridge mortgages are a very useful financial tool for people who want to purchase a new property but can not sell off their present property immediately to release cash for the purchase. Ideally, a person should wait until he has sold off his property and received the proceeds of the sale, before purchasing a new property. But sometimes, you can not wait for that to happen, as the new property might be just too good to miss. Bridge loans are a short term solution for such situations
Bridge mortgages are like any other mortgage, except that they are made available for a short duration, usually for a period of six months. They are used by borrowers to address their urgent financial needs until their long term finances are secured, or the collateral is sold off. These loans carry a very high interest rate and should be opted for only in certain situations. Some such situations are discussed below.
Buying new property to make a profit
If you are planning to acquire a property for turning it around and selling for a profit, it's likely that you wouldn't find any bank to approve your loan application easily. You will have little choice but to opt for bridge financing to fund your endeavor. You can always pay back once your efforts bring in returns.
Buying a new home and selling the old one
One of the most common situations where people go for bridge mortgages is when you want to sell your old house to buy a new house. You may be banking on the proceeds of your old house to finance your new home, but in several situations, you may not find a buyer for your old house and the seller of new property will not be willing to wait. In such cases, you can opt for a bridge loan to buy the new home and repay the loan when your old house is sold. Bridge loans have obvious advantages over permanent loans, such as shorter closing time and no pre-payment penalty. A bridge loan bridges the gap between your new purchase and sale of the old one.
Unforeseen capital needs
Another situation where a bridge mortgage can help you is when an unforeseen opportunity or trouble arises and you can't wait long enough to get a permanent loan. You could also opt for a bridge loan if you need money to repay a bank loan that you can't immediately funds for. This will save you from defaulting on the loan and seeing a dip in your credit score, which can hamper your chances of getting loans and mortgages in future. But you should remember that a bridge if not paid back in time can become a very expensive proposition.
Despite the fact that bridge mortgages carry a high interest rate, there are situations where no regular mode of financing can help you except a bridge loan. There is no harm in going for the option if you are committed to paying it back in time and have planned well for it.
