The bridging loan is a limited-term loan to finance a new acquisition before having sold your property.
Operation of the real estate bridging loan
It is a loan that allows you to obtain a partial advance on the sale of real estate occupied by the person who requests it. This credit will make it possible to make the “relay” between the current property and the acquisition of the new property. It is a credit with limited duration, between 1 year and 2 years, this credit must then be obligatorily repaid, even if the borrower has not succeeded in reselling his first property.
The bridging loan does not provide for any amortization or even any repayment of capital before the resale of the property, only interest will be payable. In other words, upon acceptance and debugging of the funds, the borrower will reimburse monthly payments consisting only of interest, the amortization will not be recorded until the transfer has been made or the bridging loan comes to an end. As soon as the property has been sold, the borrower repays the interest and the capital.
Limited amount: the amount of the bridge loan will be limited, in general it is not possible to go beyond 80% of the value of the property put up for sale. The bank will be based on the profile of the borrower but also on important elements such as in particular the signing of a sales agreement with a buyer.
The different types of bridging loans
There are essentially two types of bridging loans: the dry bridging loan and the back-to-back (or combined) bridging loan. Generally, it is the back-to-back bridging loan that is most common in the buy / sell market.
The dry relay loan
This type of financing will be offered when the purchase price of the new property is lower than the price of the old one. The borrower therefore does not need to apply for other financing and can repay the bridging loan when reselling the property.
The back-to-back loan (or twinned)
This type of credit will be associated with a conventional mortgage and will apply when the purchase amount of the new property is greater than the old one. The bank grants a bridging loan and completes the necessary amount with a repayable loan. In this case, the borrower reimburses a monthly payment consisting of the repayable home loan and interest on the bridging loan.
The rates charged for bridging loans will depend on the current conditions of the banks and in particular on the key rates. A request for information can make it possible to obtain a rate estimate.
Advantages and disadvantages of the bridging loan
As with any loan, there are risks and opportunities to be grasped when applying for a bridging loan, so you must be aware of the advantages and disadvantages before taking out a bridging loan contract.
- Have a maximum period of 24 months to resell a property
- Not having to accumulate two loans and being able to settle the bridging loan without compensation for early repayment
- Being able to buy new real estate more easily
- The rates are often higher than on conventional mortgage
- Increase in the amount of interest to be repaid over time
- Mandatory refund, even if the resale has not taken place