Relay loan, definition and principle

 

The bridge loan is a short-term home loan that comes into play as part of a new home purchase by someone who already owns a home.

So to speak, the bridge loan will be used to finance the purchase of the new housing until the owner succeeds in selling his residence.

What are the advantages of the bridge loan?

What are the advantages of the bridge loan?

By taking out a bridge loan, a homeowner can quickly acquire real estate without waiting for more cash in his account.

In addition, the bridge loan avoids buying it to sell its former residence before being able to settle in the new. Indeed, if he manages to sell his property and he has not yet been able to find another house, he will be forced to stay at the hotel or rent an apartment.

By subscribing to a bridge loan, the homeowner will be able to move into his new home and take the time needed to sell the house.

What is the amount of the bridge loan?

What is the amount of the bridge loan?

The amount of a bridge loan is set according to the value of the property offered for sale. However, no bank provides a loan that corresponds to the full selling price. Only a percentage is granted to applicants for this type of loan.

The amount is therefore fixed according to the contractor and the nature of his property. In principle, the interested parties get 70% of the sum requested, in other words, a little more than half of the sum that has been estimated by a real estate professional or a notary.

Why do banks never give the full amount? Well the answer is simple. In case the owner can not find a buyer for the fixed price, he can still negotiate with him. By doing so, the residence can be sold and the entire bridging loan can be repaid.

The interest rate of the bridge loan

The interest rate of the bridge loan

Generally, the bridge loan rate is always lower than the conventional mortgage rate. Depending on the banks and the terms of the contract, interest can be paid in monthly installments or at one time when the sale of the old property is finalized.

Of course, this second option may be more expensive for the borrower because the interest is capitalized. Subsequently, the interest due is revalued on the basis of the capital and interest that has been advanced.

Duration and maturity of the bridge loan

Duration and maturity of the bridge loan

Like all other forms of loans, the bridge loan has a maturity. Therefore, the contractor must repay to the bank what he owes on the date mentioned in the contract.

In general, loans granted by financial institutions must be repaid within a period of between 1 and 2 years. Nevertheless, extensions are always possible.

If the old residence is not sold within the time limit set in the contract, the owner is exposed to a difficult situation. Also, before signing the contract, you must be sure you can sell the property on time.

In the event of interest to only a few people, it is necessary to provide for improvement or a reduction in the selling price.

What are the risks that the bridge loan can cause?

What are the risks that the bridge loan can cause?

Of course, the bridge loan is not risk free. The worst case scenario is that the bank will take you to court if you fail to repay what you owe on time.

To be safe, the bridging loan must be repaid as soon as possible or accompanied by an automatic renewal clause.