How A Bridging Loan Differs From A Mortgage

by | May 3, 2017 | blog, Home

In many ways, bridging loans are bracketed in the same category as mortgages.  Given the way in which both loans are more often than not used for property purchase and development purposes, they are frequently thought of as one and the same. But while there are certainly similarities between the two, there are also key differences – many of which highlight the unique advantages of bridging loans.

For example, whereas a mortgage will typically be arranged with a repayment period of at least five years, bridging loans are much shorter-term in nature.  Generally being repaid within a maximum of 18 months, repayment periods with bridging loans can actually be as short as one day. This immediately simplifies both the borrowing and repayment process for the lender.

Mortgages will only usually be offered for the specific purpose of purchasing a property. By contrast, a bridging loan can be used for just about any purpose whatsoever. Just as long as the borrower in question qualifies, bridging loans can be used for business expenses, home extensions and refurbishments, paying unexpected bills and generally meeting any costs that may come out of the blue and require an immediate resolution.

While a mortgage will generally be paid back on a monthly basis, bridging loans are more frequently paid back in one lump sum at the end of the term.  Technically speaking therefore, a bridging loan represents an accessible financial solution, even in any instance where the borrower may then go several weeks or months without any income/capital whatsoever.

In terms of gaining access to the required funding, organising a mortgage and obtaining the capital usually means an intensive and complicated process that drags on for weeks. For obvious reasons therefore, this is entirely unsuitable where the money is needed promptly. With bridging loans, it usually takes no longer than a day or two for the loan to be approved and for the amount to be transferred.

Provided there is sufficient security available, a bridging loan can be offered up to 100% of the purchase price of a property. As things stand right now, there are no conventional lenders offering 100% mortgages on properties of any kind.

Though suitable for most property purchases, mortgages tend to be somewhat limited with regard to minimum and maximum loan sizes. As such, there’s comparatively little flexibility when compared to bridging loans, which cater to the needs of far more borrowers at both extreme ends of the scale. From comparatively small sums to the largest loans around, bridging loans cover all bases from top to bottom.

Last but not least, one of the biggest problems with so many mortgage products is the way in which they are governed by very strict age restrictions. Generally speaking, those over the age of 50 may find it very difficult to obtain a conventional mortgage of any kind. By contrast, bridging loans generally are not governed by any age restrictions whatsoever. Instead, it all comes down to the overall eligibility of the borrower, rather than simply their age alone. Find out more about property finance.

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