Bridge the Financial Gap with a Bridge Loan

Bridge loans are defined as short-term loans that “bridge the gap” between an immediate need for funding and the closing of long-term financing. With good cash flow, banks will provide bridge loans, but often the requirements for the loan are too steep.

A bridge home loan can be obtained to pay off the existing mortgage on an old house when your are purchasing a new home. If the old home doesn’t sell, the borrower generally begins making interest only payments on the bridge loan. A bridge home loan usually requires a large prepaid interest amount. The bridge loan is paid off when the old home sells, and any unearned interest is credited back to the borrower.

Under the terms of a traditional bridge loan, the borrower has no monthly payments. Instead, the loan and all interest are due at the end of the loan term, often 90 to 180 days. A bridge home loan, plus the amount of other mortgages, should not exceed eighty percent of the market value of the home being sold. The bridge amount sometimes, but rarely, is extended to 90% of the home for sale. The lender takes into consideration the borrower’s credit history when making this decision.

Bridge loan interest rates

Bridge loan interest rates are often the prime rate plus one percentage point. However, bridge loan interest rates can vary depending on the borrower’s credit history.

Bridge loans: Other options

Instead of a bridge loan, some borrower’s should consider taking out an equity loan or home equity line of credit based on the equity of the home for sale.

Bridge loans can make the difference between making a purchase or missing out on a purchase. If you have more time, you should look for other financing options, but if you need to move quickly, a bridge loan might be the only way to go.

If you need any help with your bridge loan, or any other type of loan, contact us today.

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