how does a bridging loan work?

Also called purchase-sale, it allows the acquisition of a new property before the sale of the current one.

What to do when you come across a property that you have been looking for for so long, but the current accommodation is not yet sold?

Buying before selling is possible, and this is the role of the bridging loan than managing this in-between period.

A short-term loan

It concerns owners, second-time buyers and rental investors. Its amount corresponds to part of the value of the current property offered for sale. Naturally, this estimated amount of sale makes it possible to calculate the amount of the loan necessary for the acquisition of the new property.

Here are its main features:

  • a short loan, generally not exceeding 24 months;
  • logically, an absence of prepayment allowances (IRA);
  • a reimbursement, in certain cases, of the interest and the amount of the borrower’s insurance during the first months, before the capital when the current property is sold.

Different types of bridge loans

Depending on your situation:

  • dry bridging loan: it corresponds to an advance from the bank. The loan covers the amount of the future purchase, which is below the value of the one for sale (for example, an apartment with a smaller surface area);
  • back-to-back bridge loan, for example in the event that the costs of the new accommodation are higher than the value of the property. Here, the bank grants a single bridging loan (old loan in repayment and new loan);
  • purchase bridging loan: here, it is a repurchase of credit by the bank in order to smooth the monthly payments.

Bridge loan: Calculation of the amount

The amount of the bridge loan is estimated by the bank in a range of 50% and 80%, often 70% of the value of the property that is put up for sale.

The ratio is set freely by credit institutions according to the health of the real estate market or the intrinsic qualities of the property. A real estate broker can help you with this important process.

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