Many a times one is left helpless before a waiting opportunity because the funds required are not available. To ensure that one does not miss on such a prospect the role of bridging loans comes into play.
These loans are are meant for those borrowers who, even after having ample resources of their own, are not able to utilize their services due to the paucity of cash or the inability to convert their resources into ready cash. So it might take some time to meet the cash requirements by selling the assets. Till that, in order that they do not miss any opportunity, they can use these loans.
Bridging loan is a short-term financial arrangement which takes care of the deficit in business deals, home purchasing and other circumstances. These loans are used to avoid temporary financial upheavals till the borrower gets a permanent source of finance.
Bridging loan deals enable one to fulfill many projects in the immediate future like: new home-purchasing even though one is yet to sell off the old one, buying property in an auction, taking over ones rivals’ business with sufficient funds in hand.
Many creditors provide bridging loans at the standard home loan interest rates. Sometimes there is even the provision to capitalize interest until one sells the old property. But one has to be very cautious regarding the size of debt and the cost of current property. Cautions apart, these loans provide one the flexibility to purchase new property before he/she is able to sell the existing one.
Now the question arises when to go for a bridging loan deal . One has to decide about how long the money is required for, does one posses an unconditional contract on the property to be sold, at what stage the new project is, your current standing to meet the loan repayment etc.
Ones answers to the above questions will determine the right loan type and the borrowable amount. Lender's rates and offers are decided by the degree of risks involved for the fund provider. Quite surprisingly, with some lenders one can get up to 6 months to sell the old home, provided he/she is buying an established house; and up to 12 months if the house is being built. Still going high on the scale of suitability there are attractive options like LVR (Loan Value Ratio) ranging from 70% to 100% and the capitalized interest.
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