subject: Picking the right bridging loan- tips and useful info on electing a commercial bridging loan [print this page] Picking the right bridging loan- tips and useful info on electing a commercial bridging loan
A commercial bridging Loan is a short-term loan used as a way to provide funding for the purchase of a new property while the borrower awaits the sale of an existing property. Unless all the stars are in perfect alignment, it's tricky to coordinate the sale of one property and the purchase of another property in such a way that the transactions occur simultaneously.
A commercial Bridging Loan or "commercial bridging finance" as it is also commonly known, makes such transactions possible. They keep the borrower from getting stuck in a rough financial corner, which typically means being forced to pay two mortgages at the same time. commercial Bridging Loans can be used either for commercial or exclusive reasons.
Short term in nature, the application practice for a commercial Bridging Loan is similar to that of a common loan.Most importantly, it's advisable to work with a lender that is experienced with this type of loan. Plus, as the need for a commercial Bridging Loan repeatedly arises with little advance notice, being pre-approved for such a loan is a smart move.
Commercial Bridging Loans are repeatedly interest only meaning that the borrower pays entirely the interest on the loan each month. The borrower continues with this repayment plan until the property the loan is being used for is sold. When the sale finally does occur, the proceeds of that sale are used to repay the principal. The principal payment typically is in the form of an one-time, lump-sum payment.
The lender need not be too concerned about default because the borrower is required to put up collateral to secure the loan. This is typically in the form of another share of property. But rest assured the lender will still thoroughly review the credit history of the applicant, the trade and any partners or others with an ownership interest to assess the level of risk it is undertaking. poor credit however need not be an obstacle.
The interest rate on a commercial Bridging Loan is based on several key factors: the potential risk associated with the loan, the conventional interest rates and a premium added by the lender. As commercial Bridging Loans are short-term, repeatedly not longer than two years, and in most cases exclusively a metter of months, the lender has only a short time to make a profit on the deal. The profit is derived from the interest rate.
Expect to pay a higher rate of interest for a commercial Bridging Loan. And remember, the monthly payments are usually interest purely. You should also expect to pay off the commercial Bridging Loan in full, repeatedly as an one time payment, as soon as the property is sold.
In the off chance that the property is not sold before the commercial Bridging Loan matures, it can regularly be converted to a typical loan without a payment penalty. But as ever you should not assume this is the case and be sure to seek with your lender that this is an option if circumstances call for it.
