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What are the differences between Bridge loans and a traditional mortgage?

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It can be quite difficult to secure any kind of loan or mortgage in the current economic climate. Coupled with the number of different products and services now offered by banks and lenders it has become a daunting task trying to understand the difference between the types of loan on offer.

At its most basic level we can split loans into two different categories;

  1. Short term finance and
  2. Long term finance

Short term finance, as the name suggests implies, is taken out over a shorter period, as opposed to long term finance, which would be taken out over a number of years. Mortgages are a form of long term finance, whilst bridge loans are a form of short term finance.

Short term finance options like bridge loans become useful for example when buying a new property but without wanting to sell am existing property. Another example of using a bridge loan can be to help speed up the completion process in a chain. Due to the recent economic crisis credit checks and due diligence performed by most bank and mortgage providers has become increasingly stringent and as a result it can take weeks or even months to get approval. Here a bridge loan would be taken out to help ‘bridge the gap’ between the application time and acceptance time. This can allow for the property to complete and works begin without delay.

There are other numerous advantages to taking out a bridge loan over a longer term loan or mortgage.

Fast Loan Approval:

When applying for a bridge loan you will get an instant decision on your request. As bridge loans are secured loans (meaning a property or asset is used to secure the monies borrowed), you don’t need to worry about lengthy credit checks or processing. As long as there is enough capital owned in the property, then you may be eligible for a loan, even if you have bad or adverse credit history.  

The same approval service isn’t possible with a regular bank loan or mortgage, as they will have a set criteria along with strict checking credit procedures. This is mainly due to the recent bank crisis that hit, leaving many banks extremely wary about how much and who they lend to. This can mean the approval processes can stretch to weeks and even months, as well as increasing the fees incurred.

Instant Financial Options:

With bridge loan finance from Bridge Direct, not only will you get an instant decision as to whether you will be accepted for our application, in some circumstances it may be possible to receive the funds in the same day. This can be done because when you speak with bridge direct, you are talking directly with the decision maker. Bridge Direct are lenders, and not brokers, with direct access to over £12 million capital.

Less Verification:

As bridge loans are secured against capital held in an existing property or asset, as long as you have enough equity held, you may be eligible for a loan. At Bridge Direct each deal will be assessed on its own individual merit, so you may be accepted for a bridge loan, even if you have bad or adverse credit.

Banks or mortgage providers will generally need to satisfy a set criteria as well as provide a whole host of personal information, documents and credit history before you will be considered for a loan. As was previously mentioned, these additional credit and due diligence checks can add weeks or even months to the process. Added to this, if you have any kind of recent bad or adverse credit you will probably find it extremely hard to be accepted for a mortgage.

Loan Amounts:

With a bridge loan the final loan amount would be in the hands of your bridge loan lender, and how much equity you hold in the property or asset you are securing against. When you take a bridge loan out with Bridge Direct you could free up £30k - £500K instantly.

With a bank loan or mortgage the amount being borrowed will be heavily assessed against current income, as well as looking back on previous accounts.

Interest Rates:

A short term bridge loans interest rate will generally be higher than a traditional bank loans or mortgage, however, this will differ from lender to lender. When you take into account the benefit a bridge loan can provider to a buyer, these interest rates can soon be cancelled out. For example, by taking out a bridge loan against the current property you can hold off on the sale until the property market picks up or a better offer comes in.

Interest rates are normally lower when compared to other short term loans, however, by waiting until a mortgage or bank loan being secured could mean facing pressure to sell at a lower price or even losing out on a sale.

Flexible Repayment Options:

Bridge loans generally have more flexible repayment options. With a bridge loan the loan is repaid in full at the end of the term, meaning you don’t need to worry about the regular monthly repayments that occur with bank loans or mortgages. There is also the option to extend the period at the end of the loans term or strike a new deal, extending the finance options.

Bank loans or mortgages you will need to make a regular monthly repayment each month, meaning payments will need to be made even if the funds are not available.


Tags: Bridge Loans, Bridge Loans Lender, Commercial Bridge Loans, Short term bridge loans

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