Understanding mortgages vs bridging loans

Understanding mortgages vs bridging loans

What sets these two routes of finance apart, and which one is best for you?

In the world of property, the sheer amount of decisions you have to make and processes you have to go through can make the whole thing feel completely overwhelming. There is certainly a lot to think about, and arguably the most important aspect is the financial one.

Making sure you have the funding you need in place is a large part of why moving house is considered one of life’s most stressful procedures. On top of packing and physically moving to a new home, you need to cover a wide variety of costs, from solicitor fees to the deposit on your new house.

In order to help themselves through the costs of buying a house, most people opt for a mortgage. This is of course the obvious way to make a new home affordable in the long term, but what about the finance you need to produce in the short term? That’s where bridging loans come in.

More and more people are exploring bridging loan rates to help bridge the gap between buying and selling a property. But what makes them so different from mortgages?

What makes bridging loans different?

In many ways, bridging loans follow the same processing route as a mortgage. In fact, in the loan paperwork they are often referred to as a mortgage. However, there are plenty of factors which set bridging loans apart from more traditional mortgages. For example:

  • Bridging loans are usually arranged to suit short term financial requirements, starting at one day and lasting up to a maximum of 18 months. Mortgages, on the other hand, are arranged over a much longer period of time, usually with a minimum term of 5 years.
  • Bridging loans can be arranged for a wide variety of property and land purchases, no matter their condition. Meanwhile, mortgages are generally arranged exclusively on habitable property and cannot be used for land purchases.
  • Bridging loans can also be secured on a property as an additional charge, behind another charge that is already in place, i.e. a mortgage. Mortgages are an exclusively 1st charge form of funding, which makes them less flexible.
  • While mortgages are usually repaid monthly and require extensive proof of affordability in order to be obtained, bridging loans are different. They do not usually require monthly repayments which means these requirements aren’t often necessary. Because of this, people with low income can obtain a bridging loan.
  • Bridging loans are often offered by smaller, independent lenders, unlike mortgages which are usually offered by much larger organisations and banks. As such, bridging finance is generally more flexible and personal.
  • Bridging finance can be arranged extremely quickly. Mortgages can take months to be processed fully, while bridge finance can be arranged and completed extremely quickly, often within a matter of days or even, in some cases, hours.

Mortgage rates and bridging loan rates

Because of the flexibility they offer, along with the fast access to funding when you need it, it is not unusual for bridging finance rates to be higher than those found on a longer term, more typical mortgage. In order to successfully apply for a bridging loan, you’ll need to know that you can successfully pay back the loan by the end of the agreed term. If so, then a bridging loan can be an effective safety net to see you through the uncertain process of buying a house. Try talking to lenders to see what they can do for you.

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