![]() Find out more: mortgage interest rates explained.Interest is charged monthly, but 'rolled up' and repaid in a lump sum at the end, along with the initial loan price and any fees and charges. There are also set-up fees to consider, usually around 2% of the loan you want to take out, so it is advisable to only take a bridging loan out if you are confident that you won't need it for a long period of time. The equivalent annual percentage rate (APR) on a bridging loan can reach around 20% - far higher than many mortgages. That makes them much pricier than a normal residential mortgage. One of the major downsides of a bridging loan is the expense: you could face fees of between 0.45% and 1.6% per month. Find out more: bridging loans on the riseīridging loans are priced monthly, rather than annually, because people tend to take them out for a short period.This means that the bridging loan would be repaid first if you fell behind with repayments. Typically, if you still have a mortgage on your property, the bridging loan will be a second charge loan, meaning that if you failed to meet repayments and your home was sold to pay off your debts, your mortgage would be paid off first.īut if you owned your property outright, or you were taking out a bridging loan to repay your mortgage in full, you would take out a first charge bridging loan. ![]() This is a legal agreement that prioritises which lenders will be repaid first should you fail to repay your loans.īoth a first and second charge bridging loan take your property as security in case you default on repayments. When you take out a bridging loan, a 'charge' will be placed on your property. What are first and second-charge bridging loans? You should also have a back-up plan in place in case your repayment strategy fails - otherwise you could lose the property. They will also want to see evidence of the new property you are purchasing and the price you plan to pay for it, as well as proof of what you are doing to sell your current property if relevant. Whichever kind of loan you take out, the lender will want to see evidence of a clear repayment strategy, such as using equity from a property sale or taking out a mortgage. With an open loan, there is no fixed repayment date, but you will normally be expected to pay it off within one or two years. With a closed loan, there is a fixed repayment date - you will normally be given this kind of loan if you have exchanged contracts but are waiting for your property sale to complete. There are two types of bridging loan: 'closed' and 'open'. Your data will be processed in accordance with our Privacy policy How does a bridging loan work? This newsletter delivers free money-related content, along with other information about Which? Group products and services.
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