Do you want to finance the acquisition of a house or an apartment using the funds obtained from the resale of your current home? In this case, taking out a bridging loan allows you to bridge the gap between the purchase of your new property and the sale of your property. Very useful, the bridging loan however presents a risk if the resale of the property does not take place in time.
How does a bridging loan work?
The bridging loan is a short-term loan over 6 months to 1 year, or even 2 years in the event of renewal. Unlike conventional mortgage, which is reimbursed by regular installments, the amount borrowed in bridging loans is reimbursed in one installment at the end of the sale of the accommodation or, failing that, at maturity. Only interest and insurance are reimbursed monthly during the loan. As the borrowed capital does not decrease, this loan therefore has a slightly higher cost than a conventional loan. Furthermore, the amount you can borrow depends on the value of your current property. In general, banks will lend you between 60 and 80% of the estimated price.
Precautions to be taken in the event of a bridging loan
First, remember that the sale of your property must be quick, because, at maturity, you will have to repay your bridging loan. Care must therefore be taken not to overestimate the price of the accommodation offered for sale. Otherwise, you could be losers if you do not have offers to buy and your property does not sell. The faster you sell, the less the bridging credit will weigh on your finances.
There is a more flexible intermediate solution that allows you to have no deadline for the resale of your property. It consists of associating your bridging loan with the main loan (back-to-back bridging loan). This credit can thus finance the difference between the sale of your old home and the acquisition of the new one. When you sell, the amount is deducted from the new purchase as early repayment of part of the credit without penalty.