Is It Worth Taking Out a Short Term Loan to Finance Purchasing a New Home?

Written by Posted On Sunday, 30 December 2018 14:53

Buying a new home is an exciting time, but it can be extremely stressful too, especially when you have an existing property to sell at the same time. Getting the timing right between securing buyers for your original home so you can secure the cash to pay for your new place is a challenge, and it’s not unusual for the timing to be a little off.


In some circumstances people face a short period of time where they either don’t have a buyer for their own property, or have a buyer but the cash has not yet been released, but need to make a payment to secure the new one. This is where a short-term loan can be helpful, to meet the costs involved and avoid losing the new property.

 

For relevant advice on getting a loan check out Oink Money - Short Term Loans UK.


Bridging the gap
In these cases most people choose to apply for a bridge loan, a special form of short-term loan intended to be borrowed for any period from a couple of weeks to 2-3 years, but is this something it is really worth doing? Let’s look at the advantages and disadvantages of this type of short-term loan to finance the purchase of a new home.


The plus points
• They are a good way of securing a new property you already spent time and money on

           finding and securing for yourself.
• Bridge loans can help you avoid losing the sale agreed on your sale property while the

           buyers finance is processed.
• They are usually quite easy to arrange with the cash released quickly.
• Some lenders allow a period of a few months with no payments, although of course

            interest is still being added.
The points to watch out for


• Bridge loans are generally a more expensive form of borrowing than usual, as interest

           rates tend to be quite a lot higher.
• You may need to borrow more for the new property to help pay back the bridge loan.
• Some bridge loan lenders require collateral, or only lend a percentage of the amount you

           need.
• Bridge loans attract various fees, to cover the costs of things like administration,

           appraisal, escrow, title policies, notaries and bank costs to add to the total cost. (There

           may also be an origination fee to pay on top.) Different lenders charge different rates so

           always compare several.
• If for some reason the original property sale falls through you will be left to pay two

           different debts, which could be financially crippling.


Other options?
Bridge loans can definitely be lifesavers in some circumstances, ideally when you can be quite confident that the debt can be serviced within a matter of months, or you are downsizing so will be borrowing less for the new property than you expect from the first. Otherwise, it is best to approach them with a great deal of caution, and perhaps to consider alternative finance options like home equity loans.

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James Stevenson

Hi, My name is James and I've been involved in the property and real estate industry for 10 years now. I hope people will like to read about my thoughts and experiences in the industry and please contact me if you want to discuss my articles further!

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