What Are Bridge Loans & How Do They Work?

A bridge loan is a kind of short term loan taken out for a set period of time ranging usually from 2 weeks to 3 years. Bridge loan has a short tenure with a relatively higher interest rate than a standard loan. Some lenders might charge you the standard variable rate on a bridge loan and some will adjust the interest rate as per the situation or the risk involved. You may rarely come across the situation when you would sell your current property at the same time you buy your next home. And at times, the situation may push you to buy a new property before you are done with the sale of your existing property. Even, the arrangement of such a huge amount is not easy for everyone but, bridge loan is something which can act as a savior for you in this situation.

How to apply for bridge loan?

One can easily apply for a bridge loan individually or jointly like if you are going to co-won the proposed property the, all the proposed owners must be co-applicants for a bridge loan. The prevailing interest rate in the market for a residential property is 12.30% and for the commercial properties it is 13.15%. The interest rate may vary from loan providing agencies or banks.

Documents required to apply for short-term bridge loan

-          Proof of identity & residence ( passport, voters id, adhar card, driving license, etc)

-          Proof of income ( PAN card, salary slips, Bank statements, Form 16 & IT returns)

-          Property documents of both the parties (Title deeds with chain of property and proof of no encumbrance on property)

Repay of Bridging Loan

This is one of most important and crucial part as this will impact your financial strength. So, before you make up your mind to opt for a bridge loan, you should know that what you are getting into. Firstly, you need to know your mortgage payments are calculated during your loan period and how much you will have to pay once the loan period is over. When you are in the process of selling your existing property, the minimum repayments are calculated on an interest only basis and depending on your lender, you may be able to capitalize all repayments until the final sale is carried out. In addition, when you apply for a bridge loan, your peak debt will increase and so will the overall interest on the loan.

Should you opt for bridge loan?

Before taking another step ahead towards a bridge loan, you must know its pros and cons. The major cons of availing a bridge loan is that the interest rate is much higher than the regular loan. On the other hand it gives you the benefit to wait for better options rather than accepting a lower offer in a hurry.