Bridging Loan Rates
When considering a bridging loan (a short term loan, until a longer term solution is available), the key aspect is its viability and this mostly likely indicator if this would be the bridging loan rates.
Choosing The Right Bridging Loan
The bridging loan rate is the monthly or daily interest charged while the loan is outstanding i.e. before it is repaid. The rate can be determined by many factors such as whether the bridging loan is closed (guaranteed exit route for repayment of the loan) or open (less firm exit). Other aspects could be the size of the loan compared with the value of the property (this is known as Loan to Value or LTV), the type of security (residential property is currently a safer bet than commercial), whether the applicant has perfect credit etc.
A common use for bridging finance is when an ideal property is put on the market for sale but a client has et to receive the money from the sale of their existing property. In this instance a closed bridging loan is when the existing property is on the market, sold and exchanged but has yet to complete. This will be looked at as a low risk for the lender as they will be confident of being repaid in the agreed time frame. If the existing property is yet to sell, this will be deemed as an open bridging loan. This type of bridging loan is viewed as a higher risk of guaranteed payment in the agreed time frame and as such may demand a higher interest rate from the lender.
Bridging loan rates could be influenced by the Bank of England Base Rate and depending on circumstances can vary between 0.59% and 1.5% per month.
A bridging loan typically runs from 0 - 12 months and in certain circumstances, this can be extended longer.
Typical bridging loan criteria is as follows:
- 0.59 - 1.5% monthly interest rate
- 75% Loan to Value (LTV). This can increase to over 100% with additional security.
- Arrangement fee of 1 - 2%
- No exit fee (on certain products)
- No minimum term i.e. loans can be repaid after a day
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