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What is a Bridging Loan?
Bridging loans are primarily a short term loan or funding options designed to help you complete the purchase of a property before you receive the proceeds from selling their existing home. It can also be used to finance your renovation costs while waiting for approval on your mortgage application. As it is a shot term loan, hence they are to repaid within 6 to 12 months period.
It is a short term access to your funding needs but at a higher interest rate.
How do Bridging Loan works?
Usually a bridging loan allows you to borrow up to 15% of the purchase price of your new home with a tenor of up to 12 months. You can apply for a bridging loan by providing your Option to Purchase document (OTP) – the contract for the specific property which gives you the exclusive right to purchase.
You can choose to service only the interest during the tenor, and repay the principal when you have received the sales proceeds from your sold property.
Pros and Cons of a Bridging Loan
Pros: Funds are disbursed in a very short period of time
- Higher quantum of funds can be borrowed
- No monthly repayment