How does a bridging loan work?
How does a bridging loan work?
We are very often asked just how does a bridging loan work?. The way this type of loan works is as follows a bridging loan is so-called as it will bridge the gap between the purchase and sale of a property hence the name bridging loan, although they are not always used to buy a property then can also be used to get access to capital in an existing property and the cash can be used for whatever you want.
A bridge loan works as follows if you want to buy a property before selling the one you already have then a bridging loan is the ideal solution, the lender will make up the cost between either the property you wish to buy, it works like this because you have not sold before buying the bridging loan is used as a temporary mortgage which lets you purchase the property without first selling yours this is the most commonly used method as a bank or building society will not allow a borrower to have two mortgages at once.
To see just how does a bridge loan works.
Example.
You find a house you wish to buy but have yet to sell your own the house is on offer for £350,000 and your property is worth £250,000 with a £100,000 mortgage.
The two properties are worth £600,000 with £100,000 outstanding to the mortgagee so you need £350,000 for the purchase and £100,000 to pay off your mortgage total £350,000 this is 75% of the value of both properties so the lender works on this amount and advances £350,000, the way this works is once your existing property is sold you clear the bridge and take out a mortgage on the one you want to live in.
The loan could also be used to cover any other financial obligations you may have it is just that property purchase is the reason for taking out this type of finance.
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