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How Much Does A Bridging Loan Cost?

How Much Does A Bridging Loan Cost

Many property developers and homebuyers use bridging finance to find a property purchase. This kind of development finance offers a fast and flexible way to secure funding when time is of the essence or when your credit rating means you can’t access mainstream lenders. Although bridging loans are becoming more mainstream, a common question is how much does a bridging loan cost?

This article will clear up the confusion once and for all and explain how the total cost of a bridging loan is arrived at.

So, how much does a bridging loan cost?

It is impossible to tell you how much your individual bridging loan will cost without knowing the specifics. If you want an accurate estimate of the cost of a loan, rather than an explanation of the costs involved, try using a bridging loan calculator instead. This will give you a clear estimate of how much a loan will cost and you can customize it depending on the amount borrowed and the length of the loan.

Below, you’ll find a breakdown of everything that you need to be aware of when it comes to the cost of a bridging loan.

Interest—it’s paid monthly
Bridging loans are much, much shorter than your typical mortgage. Where a mortgage will typically last 30 years and individuals will stay with a single lender for around five years or even longer, bridging loans only last for up to 12 months and are typically paid back within 9 months—or sometimes even faster.

This means that bridging lenders will use monthly interest rates rather than annual interest rates. After all, why would you use a yearly interest rate when the loan won’t even last a year.

On the face of it, that can make the interest rates of bridging lenders much higher than traditional lenders. That’s because you are paying for the flexibility that bridging loans offer. Not only are they fast to secure and shorter in term, they can also be accessed by people who can’t secure mortgages and cover properties that a typical mortgage company would turn heir nose up at.

The total cost of the loan is more important
When taking out any kind of finance, whether it is a bridging loan or a standard mortgage, it is important not just to think about the interest rate, or administration fees, but the total amount that will be repaid.

With a bridging loan, you’ll find that the total interest on the loan is substantially lower than a mortgage or almost any other form of property or development finance. That’s because even with higher interest rates, you only pay interest over several months, rather than dozens of years.

Be aware of fees
Like a lot of loans, bridging loan applications will incur several fees. While small, it is important to be aware of them so that you can plan accordingly. The fees that you pay will depend on the lender that you use but you may be required to pay for the initial valuation, an arrangement fee, legal fees, and an exit fee.

You will find that some lenders charge lower fees than others. Where this is the case, these lenders will typically have more stringent application criteria than other lenders, which means they can afford to charge less.

The great thing about bridging finance is that there is usually no early repayment fee. This can depend on what type of bridging loan you take out by it can mean that your loan is even more affordable if you are able to exit quickly.

Deferring the payment of your bridging loan

Did you know that you don’t have to pay all of the costs of your bridging loan each month? Many property developers prefer to roll up all of the costs at the end of the loan and pay them in one go or add them to a mortgage.

This is a great option for anyone whose exit strategy is to secure a long-term mortgage or for property developers who are going to sell their property at the end of renovations. When you don’t pay monthly interest, you have one less thing to worry about.

If you want more information about the cost of a bridging loan or want to receive a tailored quote today, simply fill out the form below.

 

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