Bridge loan refers to a short-term loan used by a person or company as an immediate back up of cash flow. It is also associated with real estate wherein the bridge loan is taken out from the current property to finance the purchase of a new one.
Bridge loan benefits the company or the people with finances that is strictly short-term. Since it is a short term loan, it is basically good for a six to twelve month period. It is relatively with a high interest rate which ranges from 2% above.
Bridge loans are popular in certain types of real estate markets. Since bridge loan is a short term loan, the consumption of the loan varies depending on the needs and priorities of the loaner. On the other hand, when intended to use in real estate industry, most of the loans that have been taken out from bridge loans are forwarded and geared for the long term expenditures.
It happens in mortgages when the buyers need to fuel the finances to buy a property before selling the existing one. The loan is already invested in the new property. Thus, secured to the buyer’s existing property.
In most cases, the lenders are weighing the option if the borrowers need real estate bridge loans by taking some necessary factors in order to grant the loan. It becomes questionable as to grant the loan or not because there is no guarantee that the selling property will be bought.
Eventually, when the loan is given, it already becomes the mortgages of the two properties together. There should be an analysis of the market if the property can be certainly be bought. It may be an ideal solution but the bridge loan poses a high-interest rate that when not paid on the right term, will be mounted to a much higher rate.