Bridging Loans

When someone buys a house, it is often the biggest purchase they will make in their life. However just because it is the biggest purchase does not mean it is the final purchase.

Even when one moves into their dream home, things can change. One might make more or less money and want to move to a different area. Others may find a new job and need to relocate. Whatever the reason, even though you may have spend a great deal of money on a home, there is no guarantee that you are going to want to stay there.


However, what happens when you want to move but you still have not sold your home? The lenders have a loan term for this - it is called a "Bridging Loan" and it is defined as a short term loan that is borrowed until the larger financing (ie, the sale of your previous home) comes in.

In a way, a Bridging loan is like a short term mortgage until the payment comes in. Bridging loans can actually be (and are often) replaced by mortgages as well, meaning that one may get a Bridging loan while the mortgage is processing. Often times this occurs when someone buys a house without initial planning, such as a house they bought at auction that they did not have time to get a mortgage for. Or if a dream home is put up for sale before you are able to sell your own home.

About Bridging Loans
Bridging loans typically have high interest rates and are taken only for about one month to a few years. Bridging loans are incredibly useful, but at the same time they are not ideal. If you plan far enough in advance, you usually will not need a Bridging loan as you can instead get a mortgage or sell your home before you purchase a new one. But Bridging loans are still useful when you are in a rush to buy a new home.

However, many lenders do not give Bridging loans anymore. That is because there is no certainty that you will be able to sell your home, meaning that there is no way you are going to afford to pay both back. Bridging loans are also not secured (though there are some small options that allow you to secure your Bridging loan, but this is technically a different contract and different terminology) so banks are taking a significant amount of risk when providing a Bridging loan, and with the credit crunch the way it is there are few banks willing to take on that risk.

Nevertheless, Bridging loans remain a useful type of loan to have on hand. Secured loans are often used in place of Bridging loans, using the equity one has in the home they are trying to sell, but Bridging loans require far less paperwork and those banks that are willing to give them often do so very quickly, so if you are in need of some quick financing to pay for a home, a Bridging loan may be your easiest option until you are either able to sell your home or apply for a new mortgage.

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