For a real estate purchase to be successful, you need good partners. The banker is one of these valuable allies. With the "bridging loan", he enables us to finance the new property before having sold the one we already own.
Given the competition between buyers and sellers in certain sectors, it's best to surround yourself with the advice of a good coach to land that coveted property. Bankers can speed up projects with a bridging loan.
How to finance?
In today's record-breaking property market, you can't afford to rest on your laurels! Except that you need to have the necessary budget to finance your future acquisition. The solution is a bridging loan. This gives the buyer an advance on the price of the forthcoming sale. This enables the owner to sell the property in good conditions, without having to sell it in a hurry. What's more, like all property loans, the bridging loan currently benefits from historically low rates, making it an even more attractive solution.
TAKE ADVANTAGE OF LOWER RATES
With a rate of 1.29% across all terms, property loans are beating their October 2016 record of 1.33% (source Observatoire Crédit Logement / CSA).
How much to borrow?
At between 50% and 75% of the estimated value of the property to be sold, the amount of the bridging loan is a sort of cash advance. Its particularity lies in its different formulas:
- dry bridging loan. This is the only loan in the financing plan, and is used to purchase a home financed entirely by the resale of the property.
- integrated with the main loan. Some banks do not distinguish between the bridging loan and the main loan, and offer a single, comprehensive loan for the amount needed to buy your new home. When the property is sold, part of the loan is repaid in advance. The monthly repayments or loan term can then be reduced accordingly.
- combined with a main loan. When the price of the new home is higher than that of the existing home, banks offer a financing plan that integrates the bridging loan with other loans (mortgage, zero-rate loan, etc.).
What interest rate to negotiate?
The interest rate on a bridging loan is calculated in the same way as for a conventional loan. Its only feature is its short-term duration, from 12 to 24 months, with a view to purchase-resale. However, banks are taking advantage of this to offer rates that are almost equivalent to those offered for a 15-year purchase!
How long is the repayment period?
The term of the bridging loan is one year, and can be extended to two years in certain cases. It is equivalent to the time the buyer has to sell the property. When taking out a bridging loan, the borrower has two options: either to pay the interest in monthly instalments, or to pay it in a lump sum when the property is sold.
As long as thenew property has not been signed for by the notary, the bridging loan customer is not committed to the bank. If the property is not sold on time, the bridging loan can be converted into a conventional loan.
Christophe Raffaillac