All bridging loans are unique, yet follow the same basic formula:
- A loan is taken out to cover a short-term financial gap, or to fund a purchase or investment of some kind.
- The project or purchase goes ahead as planned, and interest accrues on the facility on a monthly basis.
- After around six to 12 months, the loan is repaid in full – typically upon the sale of the property the loan was used to purchase.
Having a concrete exit strategy holds the key to getting a good deal on bridging finance. This refers to the borrower’s plan for repaying the outstanding balance (inclusive of all borrowing costs) in the form of a single lump-sum payment.
But what happens when a bridging loan customer would prefer to hold onto the property or asset they bought with their loan?
Where a bridging loan is used to buy and refurbish a residential property, could the customer retain the property and let it out to tenants – instead of selling it?
Refinancing vs. Bridge-to-Term Loans
For bridging loan customers looking to retain their assets upon completion of the loan term, there are two options available:
- You can refinance the bridging loan by transitioning it to a longer-term agreement, such as a commercial mortgage or specialist buy-to-let property loan.
- You can take out a bridge-to-term loan in the first place, which automatically transitions to a longer-term facility with the same lender.
While both of these options pave the way for the same basic outcome, there are major advantages to bridge-to-term loans.
Taking out a bridge-to-term loan helps keep paperwork and admin to the bare minimum. Both the initial bridging loan and the subsequent longer-term loan are issued by the same lender, eliminating the hassle of switching providers toward the end of the initial loan term.
In addition, sticking with the same lender for both facilities can result in more competitive borrowing costs. Whenever a loan is taken out, the same standard fees and charges apply – arrangement fees, processing bridging loan fees, admin fees, legal fees, valuation fees, transaction fees and so on. Whichever fees apply when taking out a bridge-to-term, you only need to pay them once.
By contrast, switch to a separate provider for the secondary long-term repayment facility and all initial fees may be payable once again.
Independent Broker Support
As not all lenders offer bridge-to-term products, it is essential to apply under the watch of an experienced broker. Along with pairing your requirements with an appropriate lender, your broker will negotiate on your behalf to ensure you get an unbeatable deal.
In addition, your broker will help you understand your obligations and entitlements, should your circumstances change along the way. Just as it is possible to transition a bridging loan to a longer-term facility, it is also possible to repay a bridging loan in full at an early date to minimise borrowing costs.
Call anytime for an obligation-free consultation, or contact us by e-mail and we will get back to you as soon as possible.