Is It Good Idea to Go with Bridge Loan?

A bridge loan is the easiest tool when it comes to spanning two separate loans at the same time. This is exactly what it sounds like. In the real estate industry, this loan enables the investors to cover the gap between old and new loans. For example, you have found a desirable property but to you need to sell an existing property to afford the new one without having your closings coincided – a commercial mortgage bridge loan is really a valuable tool. But to be honest, the mortgage loan is a little bit expensive than all other loan options so you need to make sure that you are aware of the facts before you jump in.

In the course of acquiring a bridge loan, a borrower uses some of the equity in the existing property he owns as collateral. A bridge loan is specifically structured either to completely pay off the existing mortgage or it may be called upon to add a new debt to the existing loan. Either way, there is one thing you need to keep in mind if you want to qualify the loan– a bridge loan lender always makes sure that you have a binding contract of sale on your existing property.

Why is Bridge Loan so Expensive?

The bridge loan is more expensive than other loans and there are legitimate reasons behind. Do you know how many financial transactions are included when it comes to getting your bridge loan sanctioned? From closing costs to taxes on the existing home and six months prepaid principal to interests, they all are included in the finally approved loan amount. If you have a plan to sell your home within the first 6 months, you will actually need credits for the prepaid funds as well.

After a bridge loan lender settles your existing mortgage, he also finances the mortgage on the new property. So this is obvious to get your mortgage loan on two different properties (existing and new) with high-interest rates.

Why is Bridge Loan the Best Option?

When it comes to settling two mortgage loans at the same time, no options are better than the bridge loan. Despite the higher rate of interests, costs and many other restrictions, the loan option is preferable. You are seeking a bridge loan, check your ability to borrow and from your stock bonds, home equity line on your existing home and even your insurance policies before you commit to this approach.

The author is an avid writer. The article is about bridge loan.