subject: Understanding the Different Types of Bridging Loans [print this page] Understanding the Different Types of Bridging Loans
Open Bridging Loan
An open bridge loan is where the repayment method is undetermined at the point of initial enquiry. Almost all bridging loans are now open bridging loans because the repayment method is rarely guaranteed. Usually it will be refinance or sale of property. If refinance, the lender can pull the product that the client requires at a moment's notice and then the client has to then go and find a different product to apply for. Similarly, sales of property fall down at the last hurdle quite frequently due to a variety of reasons. Most bridging companies now deduct the term's interest from the advance of the loan and repay what is not used as this gives them extra security knowing that the interest is paid for the term of the loan.
Closed Bridging Loan
A closed bridge is where the exit route is in place and has already been agreed. Several years ago this was called back to back, or day one remortgaging and tremendous amounts of business were transacted between bridging companies and first charge mortgage lenders, primarily Mortgage Express. With the vast changes that have occurred in the financial world in the last 3 years there is realistically no such thing as a closed bridge nowadays because lenders can pull products at the last minute with no warning, and as has always happened, prospective purchasers can also pull out of a transaction at the 11th hour.
First Charge Bridging Loan
A first charge bridging loan is where the lender takes a first charge over a property above all others. This is usually done when a purchase take place, but with FSA regulated loans this can be done on a main residence where the client wishes to downsize or raise capital for other purchases.
Second Charge Bridging Loan
As its name suggests, this is where the lender takes a second charge behind the existing first charge lender. Not to be confused with a secured loan, second charge bridging loans are only for a small period of time (typically up to 12 months) where the money is being raised for investment use or business purposes.
