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Have you ever been stuck in between a new property and the old one, paying both mortgages. Paying two mortgages can be challenging, especially when it is not planned. Thankfully, bridging loans were created by financial institutions to help address this challenging situation.
Bridging loans are temporary term loans that assist to bridge this gap between the closing of the existing property and the purchase of the new property. While it is not a common scenario, under some occasions there is a longer time period than was originally anticipated. The bridging loans assists the property owner to cover their dual mortgage costs, with the proceeds from the bridging loans being also used towards the down payment on the new property once it has closed.

The Bridging Loans, Steps to Funding

As with any home mortgage, the owners must undergo underwriting to become approved for the bridging loans. Each lender will generally have their own approval procedure that must be followed in order for the property owner to be approved for the bridging loans. And, these standards are often more flexible than traditional home financing when it comes to debt to income ratios, suggesting that these ratios can often be higher than with traditional mortgage loans.

The rationale of different requirements associated with bridging loans is that they are temporary and purely created to help a property owner in transititioning from their current property into their new property. And, the proceeds from the bridging loans are generally applied to the new home loan in the event that they are not consumed during the waiting period before to closing on the new property.

Benefits of Bridging Loans

There are a number of advantages to the property buyer of bridging loans, including:
•    It allows the property owner to place their home onto the market quickly and generally with less restrictions than if they didn’t have the added financial cushion.
•    A lot of bridging loans don’t mandate monthly loan or mortgage payments, giving some financial relief to the existing property owner.
•    The loan can provide the property owner some flexibility with contingencies on their property sale, allowing them to reject offers that are not favourable without financial fear of carrying two mortgages in the circumstance that their new property closes on time.

Disadvantages of Bridging Loans

While there are multiple advantages to using bridging loans when buying or selling homes, including:
•    The costs associated with bridging loans are often higher than traditional home loans and even home equity loans.
•    Some property owners may not qualify for a bridging loans due to the lending qualifications
•    Even though the bridging loans can help the property owner in paying the mortgage costs during the transition process between properties, they must still financially cover for both loans and the interest that is accruing on the bridging loans.