The difference between closed and open bridging loans

Thursday, 25 August 2011 02:24

Open and closed bridging loans

Open and closed bridging loans

If you encounter problems during the property buying process and are looking for a quick financial boost, a bridging loan could be the answer. Depending on your circumstances, however, you will need to take out either an open or closed loan.

Although they both offer the resources with which to go ahead and purchase a home, there are several differences between the bridging finance products, so you will need to give some careful thought to these when deciding which one will be most suitable for you.

Should you be an existing homeowner who has been looking to advance up the property ladder for some time, the moment you have found your dream new residence is likely to be one of particular joy.

However, such feelings may soon turn sour if the money you were hoping to raise to fund this purchase by selling your existing property is not forthcoming due to some short-term problem, for example a temporary delay in getting a building survey carried out.

In these cases, a closed bridging loan could be a solution in ensuring you get the cash needed to purchase your new home.

As the contracts agreeing to the sale of your property are already in place, you should have a firm idea of when the problems holding up the sale will be resolved and the transaction can go ahead. With this in mind, you can arrange a fixed term for your loan (hence why they are referred to as closed bridging loans) to decide when you will pay back it by.

However, if you are not quite certain as to when you will be able to sell one home in order to fund the purchase of another, an open bridging loan is likely to be a better option.

If you have found what you believe to be a dream property but are yet to place your current abode on the market, chances are you will not be able to sell the latter in sufficient time in order to allow you to complete the transaction.

As this process usually takes several weeks – if not months – there is a chance that you may miss out. But select an open bridging loan and this needn't be the case. Such products can give you the resources you require to purchase the new property while you sell your existing one.

Of course, you can't say with any particular certainty when someone will agree to buy your current home, so the loan itself has to be open-ended.

With no fixed deadline for when the transaction will be completed and when repayments can start to be made, the open nature of these products means they represent a greater level of risk for lenders than their closed counterparts.

As such, they usually attract higher interest rates, something you may want to take into consideration when using a bridging loan calculator to figure out how much you will be liable to pay back each month.

You may also find lenders will insist you have a high amount of equity in your present property and that more questions and supporting documents are requested, so they can be certain you'll be in a position to repay what you are hoping to borrow.

With the distinct differences between the two, the decision of whether an open or closed bridging loan is best in helping to realise your ambitions of climbing the housing ladder should not be too difficult.

However, it might be a good idea to seek out advice on bridging loans so that you can be sure you're getting the product that most is suitable for your needs. 



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