Bridge Loan Fills The Gap Of Temporary Financing Needs

2007-04-12 11:34:06

( Telephony )



Perhaps, you have heard about bridge loans but never really had a chance to get the answer to your question of what is a bridge loan. You will appreciate the importance of a bridge loan if you are in a situation where you plan to buy a new house but do not have the cash to pay for the deposit or down payment because your current house has not yet been sold.

A bridge loan is temporary loan that covers the period between your purchase of a new property and the sale of your present property. Banks, credit unions and other financial institutions are usually the bridge lenders. They allow you to borrow the money against the equity you have, and place a lien on your current home. You can then use this money to purchase the new home, and repay the bridge loan when your current home sells.

Like other shorter loans, bridge loans carry higher interest rates. In addition to interest rates, lenders also charge upfront points, and appraisal, loan origination, credit checks and physical inspection fees. You should carefully calculate the amount you must borrow against the equity in your current home. Because of the closing costs involved, bridge loans should only be resorted to if you have no other choice.

Bridge loans are not only limited to equities in current homes. For those who do not own a home, equities in stocks and bonds can qualify as collateral. To help borrowers avoid pitfalls of bridge loans, some loan brokers can match you with a suitable mortgage lender. Before you finally decide to sell your house, go over your financial situation carefully with the lender. This review should help you assess if you will qualify for the loans. Remember there are two loans involved: the bridge loan and the mortgage loan for the next property.


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