A bridge loan refers to a type of short-term financing that gives a person or company a flexible period to borrow money and get access to funds.
The term may be familiar to you. It is used interchangeably with interim financing, swing loans, gap financing, or bridging loans. The most defining feature of these loans is that they are always backed with collateral like the borrowers house or similar assets or property.
With this, it is safe to conclude that bridge loans involve certain risks. Therefore, the average person would naturally be curious about important information to know about bridge loans – specifically their rates.
So hang in there! Here is a brief guide on everything that you should know about bridge loan rates.
What is the standard bridge loan rate?
Bridge loans feature interest rates ranging from 8.5 percent to 10.5 percent, making them more costly than conventional, long-term financing alternatives. The traditional commercial loan only ranges its rate from 1.176 percent up to 12 percent.
With bridge loans, the application and underwriting processes are much quicker than traditional loans. Furthermore, you could still get a bridge loan once you get a prior mortgage to buy a new house. Its what makes it the most viable option for real estate owners to quickly and easily access funds to buy a property before selling their current asset. If youre interested in knowing more about how a bridge loan would cost you, you could use this bridging loan calculator to calculate your rates and repayments on any bridging loan.
What are the options for bridge loans?
Bridge loans vary. However, for loan brokers, bridge loans are usually packaged into two ways to provide the best option that suits their borrowers.
Hold two loans
The first option is the so-called hold two loans. This type of loan pertains to borrowing an amount derived from 80% of your propertys value minus the current loan balance. The money from this second mortgage is then used in making the downpayment for your secondary property. All the while, you leave your first mortgage in place until you are ready to pay it off entirely right after you sell your home.
Mortgage consolidation
The second option is through consolidating both of your mortgages. This option enables you to borrow a single big loan that amounts to 80% of the value of your property. You will then pay off the remaining amount on your first mortgage.
How much downpayment is required for bridge loans?
Bridge loans usually allow you to give a downpayment of 20 percent, commonly known as a piggyback loan. It refers to bridge loans traditionally used when you are avoiding private mortgage insurance (PMI).
To prevent your mortgage payment from elevating, you have to ensure that you have put at least a 20% downpayment on your bridge loan.
What are the limits to the money you can borrow on bridge loans?
Well, in terms of the capacity of lenders to offer you monetary funds, it is entirely up to the lender. However, we can provide you with the general terms, where usually, bridge loans will offer you a maximum of 80% of your homes value.