A bridging loan is a great, flexible, and affordable way to finance your next home purchase while you wait for your current home to sell. Perceptions of bridging loans can be quite different from reality. As a lesser-known type of mortgage, it can be challenging to define precisely what a bridging loan is and how it works. We are here to dispel some common misconceptions about bridge loans and help you feel ready to make an informed decision about your next move. So, let us start!
Myth 1: Bridging loans should be the last stop
In the past, bridging loans were viewed as loans for homeowners who exited the commercial loan late or failed when applying for traditional mortgage products. A bridging loan may be the first choice for supporting a homeowner’s short-term strategy. Bridging loans offer the flexibility to help many homeowners whether they expand, contract, or something in between.
With greater control and flexibility, you no longer have to worry about perfect timing when selling your home and buying a new one. A bridging loan is a convenient, low-risk way to use the capital you have built up in your current home to finance your next purchase.
A bridging loan is excellent if you have found your next dream home but have yet to sell your existing one, do not want to pay rent and move out, or invest in renovations before selling your property.
Myth 2: Bridging loans are expensive and can only be used to purchase real estate
A bridging loan is expensive only if it is not repaid on time. Like any other loan, it will result in penalties if not repaid. As a purely short-term facility, bridging loans should only be considered if timely repayment is possible. Bridging loans are offered regularly at competitive interest rates. A bridging loan that pays off after a few months can be cheaper than a loan or mortgage with a comparable interest rate.
Moreover, each caveat loan or bridging loan agreement is unique and tailored to the applicant’s needs. There is always room for negotiation, so bridging loans can be manageable for your budget. Buying real estate is one of the most common uses of bridging loans. However, funds raised through a bridge loan can be used for any worthwhile business purpose.
The flexibility of bridging finance is one of its main attractions. There are very few restrictions on how the funds can be used. Bridge loans can cover emergency and short-term expenses such as taxes, business plans, investments, renovations, and property purchases. These are some typical bridging loan applications.
Myth 3: Bridging loans are complex, risky, and costly
People often think bridging loans are complicated, stressful, and often a hassle to get approved. Part of the reason people think caveat loans or bridging loans are complex and stressful is how unfamiliar they are, primarily if you have never heard of this type of loan. It is evolving, and lenders are making bridging loans more common. They focus on providing more transparency about what bridging loans are used for and how they can help you in your particular situation.
These days, lenders aim to take the stress out of bridging loans with purpose-built technology and an online application process that helps you get approval in less than 24 hours. It means it caters to all types of borrowers and has flexible lending criteria. The ultimate goal is to take the stress and hassle out of securing bridging finance with a fast, convenient digital lending solution built for today.
This myth stems from how established, and reputable bridging professionals often fall into the same category as unregulated short-term lenders. Even though bridging loans have nothing to do with payday loans, the two often need clarification. A regulated bridging loan from an approved lender is just as safe as any other traditional or commercial loan—one that emphasizes the importance of only dealing with established and reputable lenders you can trust. When applying for a loan or mortgage, doing the necessary background checks with your chosen lender makes sense.
Myth 4: Bridging loans lead to dual mortgages
Homeowners typically assume that their mortgages will be administered at the same time and will end up having to make both mortgage payments. When you get a bridging loan, the lender will typically mortgage your current home to finance the purchase of your new home. It may include other costs associated with your purchase, such as stamp duty and Lender Fees. The bridging loan gets repaid when the property sells.
Myth 5: Bridge loans take time to approve and require good credit for approval
Bridge loans are often viewed as painful, with slow approvals and long wait times. However, the process of this commercial loan is a little different to make your life easier. Unlike big banks (who typically review applications manually), online lenders offer a simple online application process that only takes a few minutes. The digital-first solution means lenders provide 24-hour approvals with fast turnaround, saving hours of long and tedious paperwork.
The loan eligibility is assessed based on collateral provided to cover borrowing costs and the applicant’s exit strategy. Credit rating only matters if you have enough assets to secure the loan and demonstrate a viable repayment schedule. However, some lenders offer better deals to those with good credit history and solid evidence of their current financial situation.
Now that we have busted some common myths, you will better understand how to make an informed decision about your next home purchase or bridging finance for your business needs. Bridging loans are an effective way for business owners to access funding and take advantage of the best opportunities. The myths revolving around this loan type are because of its lesser-known nature. Educate the people around you to burst these misconceptions on the subject matter.