Here is how Bridge Loans Make A New Property Buying Easier while Having A Old One
Jul 27, 2018 Home Loan
Are you thinking of moving out from your current property and buy a new one? But the complexities of the home loans for the new house and the existing one makes it difficult for you to take the step. Worry not; Bridge loans are here to make it easier for you.
When a borrower takes a bridge loan, then he becomes the owner of two properties at the same time, as one property is mortgaged to pay the down payment for another one.
When paying the payment for the new property, the buyer will not have to pay the monthly instalments. When the existing property is sold, the money is used to pay off the entire bridge loan including the interest and remaining balance.
However, if the bridge loan is the second or third loan, then the buyer will have to make the payments on the old and new mortgage attached to the new property.
Bridge loans
Before we move further, let’s explain what bridge loans are. Bridge loans are the loans that are taken to furnish or bridge the gap between the existing loan and the new loan. The existing property is mortgaged for the short term to finance the purchase of the new property. This type of loan is a very viable option of the selling, and purchase dates do not coincide.When a borrower takes a bridge loan, then he becomes the owner of two properties at the same time, as one property is mortgaged to pay the down payment for another one.
How Do Bridge loans work?
Let’s understand how it works. To explain it more simply, a bridge loan can be structured in two ways: either it can pay off the entire outstanding lien on the property, or it can be on the top of all the existing claims. In the first option, the bridge loan pays off all the existing loan, and the remaining money can be used to pay for the down payment for the new house. On the second option, a bridge loan is opened as a second or third loan and is solely used to pay the down payment of the new property.When paying the payment for the new property, the buyer will not have to pay the monthly instalments. When the existing property is sold, the money is used to pay off the entire bridge loan including the interest and remaining balance.
However, if the bridge loan is the second or third loan, then the buyer will have to make the payments on the old and new mortgage attached to the new property.
Things to remember
- The short-term access to money is available at very high interest.
- Depending on the profile of the buyer, the interest repayment can be spread over a period of two years.
- The buyer will have to pay the processing fee.
- Some banks offer that only the interest amount should be paid through instalments and the principal amount is settled when the existing property is sold.
Bridge loan offered in India
There are around 31 lenders in India that offer Bridge loans. The interest rates vary from 10.99 percent to 18 percent. Two percent processing fee is attached to it if one wishes to opt for this loan, which the buyer has to pay it himself. Some lenders offer 80 percent of the cost of the property as a bridge loan, while few have capped the loan amount to Rs 30 lac for five years.Looking for property portal?
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