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How Are Bridging Loans Calculated?
The bridging loan calculation consists of several factors, including the current outstanding mortgage amount, the new interest rate, and the estimated value of the new property. Bridge loans remain a short-term solution to help a client fill a gap between two financial points. The 1960s saw the first short-term loans, and the concept expanded about 20 years ago when it evolved into bridging finance.
Bridge loans carry more risk and a higher interest rate. Paying off the loan as soon as possible is a great strategy to help the client save money. The longer the loan remains outstanding, the more interest charges it accrues.
Homeowners seeking to sell their current home and purchase a new one simultaneously turn to this option. It helps them manage their current mortgage and the new home loan. Clients remain responsible for their current mortgage until it’s paid off or until their home closes. If they receive proceeds from the home’s sale, roll it to the new home purchase. Then the client finds out how much they need to borrow to finance the new purchase.
There are times when the market doesn’t cooperate and the current home remains on the market longer than expected. The short-term financing solution helps the client make repayments toward the current and new mortgage.
The calculation considers these factors and delivers a final bridge loan amount. It factors in an interest rate, which will be higher than a mortgage. The loan terms presented to the client also include the administrative fees that cover processing the application.
Bridging Loan Calculation Conclusion
Every loan calculation requires a set of parameters. The bridging loan calculation has its own set of components. It’s a short-term solution and based on an existing mortgage and a new mortgage. Our loan specialists at Mortgage Street walk through the calculation with brokers and the clients they represent.