So you want to make a profit? Do you want to buy a property without selling your current property? You do not even have half of the money you require to buy the house, but you want it? Guess what? You can do it! You can buy another home without selling your current house. Do you not have enough money?
No worries. You just got to have a good deal and a brave heart. Bridging loan or Bridging Finance is what is going to help you buy a property or earn profit without putting even half of the total money. Let us fully understand Bridging loans.
What is a bridging loan?
Also known as gap financing, Bridge loans are short term loans with high-interest rates. By short term, we mean these loans last only about a year or less than that. Generally, banks take 3-4% of annual interest on the mortgage, but bridge loans may take 0.5-1% interest per month.
That can reach a 6–12% interest rate per year. Confused? Thinking, why would we take a Bridging loan if it has such high-interest rates? The reason is, though it has such high-interest rates, you do not have to pay a massive sum of extra amount because this is a short term loan.
The 10-12% interest rate is per year, but you will be paying this loan within a few months. Wondering how?
How to work with Bridging loans?
So as we said, Bridging loans have high-interest rates, but you can buy property without being forced to spend a lot of extra money. Bridging loans help you purchase a new property, say, a house, without selling your old one or until it gets sold. Here’s how you can do that.
- The first thing you need to do is find a good deal for the house you want to buy.
- If you have £20k and the property is currently ready to be sold at £120k, the seller is desperate to sell it. This is essential to remember; you need to find a good deal and be ready to bargain with the seller.
- Now that the seller is desperate, he wants money as soon as possible, so you offer to buy his house in cash.
- You both agree at a price of, say, £100k because you bargained very well, but you only have £40k. What should you do?
- Here’sHere’s where the Bridging loans come into play. They will lend you the money you need.
- They do not care about your income or your credit card score. All they care about is the property and your plan. And they have a charge in your house.
- So now you have been lent £100k by Bridging Finance.
- You use the money from the Bridging loan to buy the house and use your £20k to refurbish it.
- Now that the refurbishing is done, BOOM! The house is worth more than before; it is now worth £160k.
Now that you have made the profit, it is your choice what you want to do with the property. But you also need to pay back the Bridging loan. So for this, what you do is;
- If you plan to keep the house, you may take a loan from a regular bank at the low-interest rate that it provides and pay back the Bridging loan. This way, you are saved from spending the extra 10-12% interest, and now you only have to pay 2-3 % or whatever your bank offers.
- And if you plan only to keep the profit you made, that is £40k in this case, and you may sell the house to someone else at £160k, pay back the Bridging loan and keep the profit with you.
- You just doubled your money; your £20k is now £40k. (This amount can differ depending upon the interest you’ll have to pay)
The example we took here is just an example of how you can make a lot more profit from Bridging Finance by using a Bridging loan. You must take some banking and legal advice from an authorised or experienced person before taking action. Bridging loans can be highly risky but can work out well if you find a good deal.
A few things you need to look out for while applying for a bridging loan are
- You must know if the property you are trying to make a profit out of is worth it or not if it has the potential to uplift or not. The potential of the property also depends on the locality of the property.
- Always keep track of all the emails or messages you receive from the organisation providing you with a Bridging loan because some delay might ruin the deal.
Conclusion
As we conclude, let’s summarise what we just learnt. A Bridging loan is a short term loan with a very high-interest rate. You may use this loan to buy another property without selling one or while waiting for the current property to be sold.
You can earn enough profit from it if you find a great deal and are ready to bargain. Every property cannot be bought with a Bridging loan because you will have to pay them back, and if the property does not have the potential for upliftment, you might lose your money or make no profit out of it.
How you pay back the Bridging loan depends on what you plan to do with your property. If you plan to sell it, you can right away pay the Bridging loan back. If you plan to keep it, you might have to find a way to pay it back as soon as possible as the interest rates are very high. Perhaps a bank loan could help with a much lower interest rate.
The benefits of a Bridging loan are that it is very fast, ready to lend money, and easy to get. But it can get challenging to get out of it if you do not have enough knowledge of how Bridging Finance works.
Always seek expert advice before taking any action as your hard-earned money is very important to you.
