A bridge loan is a means for a home purchaser to fund a deposit for a different home while still possessing his older one. Bridge loan users occasionally technically carry two mortgages at the same time. A bridge loan is also only temporary in character. The interest and principal balance on it are due and payable no later than when a purchaser 's older home finally sells. There are a few different types.
There are two types of bridge loans for home mortgages. At the first, you borrow the money needed to pay off the mortgage on your old home and provide a deposit to your new one. At the next, you maintain your old mortgage and borrow from the equity you have built up on your old home. That equity is subsequently used to supply a deposit for the new home.
In the first kind of loan, you do not usually create any monthly obligations. Instead, you make payments on your home. When your older one sells, you pay off the loan’s principal balance and any accrued interest in sale profits. The second kind of loan is actually a home equity credit line, or HELOC. You’ll pay off the HELOC and your old mortgage when you eventually sell your old home.
Bridge loans, regardless of kind, usually come with due-and-payable dates set by the lender. In most cases, it comes out to about six months. If your home hasn’t sold after that time, you’ll generally have to ask for an extension. Many creditors also add a due-and-payable-upon-sale clause. This means that the loan has to be paid when your old home is eventually legally sold off, regardless of any previous term stipulations.
Bridge Loan Prices
Bridge loans do not come cheap to borrowers. Normally, they usually run about two percentage points greater than the interest rate charged for a normal 30-year, fixed-rate mortgage. Fees charged by the lender to get a bridge loan may also be greater. In reality, many bill in excess of 1 percent of their outstanding loan balance for a fee. It’s also a good idea to check on if any prepayment penalties will exist on the loan.
Most home buyers looking for a bridge loan undergo the creditor giving them the mortgage. There is no hard-and-fast rule for this, though. Bear in mind, as well, that every creditor sets the principles for how the bridge loan is granted and then reimbursed. Moreover, check to see how long homes similar to your old one have been taking to sell. Additional fees could accrue in scenarios where a bridge loan exceeds half an hour.