1. Bridging loans in real estate:

Bridging loans are quite famous and a common practice amongst property dealers, builders and even amongst individuals who want to buy one property before they could sell the other one. Mainly because it is easier and faster to get approved despite having. In a way, it is not very different from a hard money loan. Like a hard money loan, Bridge loans are obtained on a short-term duration or unusual circumstances. Also, they are availed to deal with the current monetary issue and cannot be used to plan for future. Once the main loan is availed, it could be used to repay the Bridge loans. In terms of real estate, Bridge loans for up to 12 months, 2-4 points may be charged and loan to value (LTV) ratios does not exceed 65% for commercial properties and 80% for residential property, which is also based on the appraised value of the property in the picture. Various examples where bridging loans come handy in real-estate sectors are:

1. a. In case you are purchasing a new property before you sell of your current owned property, however, you need to do a certain down payment to purchase the new one. In this scenario, you can avail bridging loan, which allows you to take equity out of your current home and use it as a down payment towards the purchase of new one. However, you must repay the same at the earliest possible to end up paying more because of high interest rate and administrative costs. In a general case, when you opt for bridging loans, be ready to expect interest rate as high as 1.5% per month i.e. 18% a year.

1. b. It is also used by the real estate developers and builders to continue with the project while they work out the approval. Once the approval is sought, it becomes more eligible for getting approved for a conventional loan and in the meanwhile that is getting processed, the project or the construction work begins to ensure timely delivery of the same.
2. c. It can also be used in case of a joint business venture, where one of the partners decides to part ways while the other decides to continue with the same.
3. d. Bridging loans are also used in auction property purchases where the purchaser generally has only 14-28 days to complete long term lending such as buy-to-let mortgage may or may not be viable in that time frame whereas bridging loans would be.

The pros and cons of bridging loans

Bridging loans are unquestionably a very useful tool when looking to increase finance, but they could be dodgier than other forms of finance. As such, it’s quite significant to carefully consider your choices before proceedings and experts‘suggestion is always recommended. There are a number of pros and cons to consider before committing to a loan.

Pros

1. Applications are generally completed within 14 days, making them perfect when funds are required quickly.
2. As no monthly repayment is required to make, bridging finance might be used to increase capital where cash flow is tight, but you have the resources to easily refund the loan.
3. The bridging market is quite inexpensive, and this is leading to a decrease in rate of interest. With rates starting from as little as 0.37% per month, bridging finance has never been inexpensive.
4. Where properties are being procured under value, loaning can often be based on the complete value of the property, meaning it’s probable to buy a property without giving any deposit.
5. Bridging loans could be used to buy properties that will be unentitled for borrowing using different types of borrowing, such as property that is uninhabitable.

Cons

1. Bridging loans are costlier than traditional mortgages. Though the rates are reducing, traditional mortgages are still by far the most cost-effective choice for most property dealings.
2. As most loans are very short term, you could experience major issues if you have problems with your selected method of repayment. Failure to repay the loan at the end of the term would ultimately lead to reclamation, and most likely significant cost.