How to Repay A Bridging Loan

Many homeowners who are moving often rely on the amount they will get from the sale of their current home to fund the purchase of a new one.  But deadlines don’t always align, and when that happens, you can find yourself in a turbulent financial state.  A bridging loan could offer to finance the purchase of a new home if you were relying on the funds from the sale of your existing home.  A bridging loan is a flexible short-term loan used in property development transactions when the developer or landlord lacks the funds.  The maximum amount you can borrow with a bridge loan is usually 80% of the total value of your current property and the home you want to purchase.  As you read, you might ask, “How do I repay a bridging loan?”

As a bridging loan is a flexible loan and being flexible, and most bridging loan does not have exit fees if you repay it before the time.  Interest is applicable as long as you haven’t repaid the loan.  The main reason to repay the bridging loan as soon as possible is to minimize the interest payments.  Before getting such a loan, ensure that the fund offer does not include repayment fees. 

Paying close bridging fund

Closed bridging loans are a funding method with a fixed repayment date, but there is no barrier to repaying the loan before the due date.  Just take the fixed repayment date as the last date to repay the loan before it is considered as being overdue. 

Closed bridging finance is usually less expensive than an open bridging loan because they have low-risk.  The borrower must show how the funds can be raised to repay the loan by the repayment date.

Open bridging loan repayment date

The open bridging loan does not have a fixed repayment date but is still known as a short-term loan.  Let’s say there is a flexible timeframe; one can repay a bridging loan (open) before or at the end of the specific period. 

Reasons to repay a bridging loan early

There are myriad events where repaying a bridging loan earlier is possible.

Many bridging loans are taken out to bridge the gap before more long-term finance is accessible.  If you are waiting for an application to be approved, a bridging loan could be a great option to carry on with the completion of a property investment before other funds are available.  Most of the time, finance applications can take some weeks; the process can take less time than you think.  In this case, repay the bridging loan early, as soon as funds are available.

Sometimes, these financing options are used to complete a home purchase because an existing home sale has not yet been processed.  Many people rely on the sale of an existing house to fund the purchase of a new house.  If the commercial property is on the market but a purchaser has not yet been found, a bridging loan can be used to purchase a new house before the existing house has been sold.

Homes can be on sale for several months before a buyer is found.  However, some lucky homeowners put their houses up for sale and get a deal seal within a few days.  If the buyer pays the amount or has a loan offer already, the completion of the sale could happen swiftly, and the bridging loan is repaid early.

Businesses often use bridging loans to buy stock in bulk at favoured costs.  The bridging loan is repaid out of the sale of these goods.  If the items experience a demand rush, they could be sold much quicker than expected, and the loan repaid early.

Often a developer can have many due invoices, and a bridging loan can be used while waiting for the invoices to be repaid soon.  Then companies plan to offer early payment discounts and raise enough money to attain this.

Especially, open bridging finances are usually for 12 months or less, but it is possible to obtain loans for three-year.  Many developers use a three-year policy to fund building projects, with an exit strategy based on repaying the loan from the sale of completed properties.  If the work is completed before time, repaying a bridging loan early can be possible. 

Exit strategy

How do you aim to raise the resources and pay off the loan?  There are two main considerations.

  • A clear and brief approach increases your chances of achieving that important loan.
  • The maximum term you can expect is 18 months.  

So right from the beginning of your application, it is important to have a clear idea of how you will repay a bridging loan.