What are bridge loans and its types?

Bridge loans are a short-term finance that are a great choice to consider when you are planning to buy add a new property to your portfolio. Bridging finance can be divided into two categories, open and closed bridging. In the post below we will try to explain the nuances between these two bridge loan types;

1)      The closed bridge

A closed bridge the simpler of the two types of bridging finance. With a closed bridge loan, the borrower knows when they will be able to settle the bridge, and so as a result knows the term of the loan. With a closed bridge loan, the interest rates are normally a little lower due to this being known.

For example, the borrower may have a mortgage lined up with a date for the receipt of funds as well and it is only a formality of completing certain checks. In this case, the borrower knows when they will receive the mortgage and ultimately be able to pay off the bridge.

2)      The open bridge

An open bridge loan can be slightly more complex as the repayment date is unknown. In this case, the borrower doesn’t have an idea of when they will be able to repay the funds. As can be expected, as this is carrying a higher risk for the lender, interest rates will generally be higher on an open bridge loan as opposed to a closed bridge loan.

For example, if the borrower is stuck in a chain and is selling an asset. They may be waiting on a third party securing funding or a mortgage. In this scenario, they know the house is going to sell, they just don’t know when. The bridge loan would then be paid once this chain is freed up.

Applying for any kind of bridging finance with Bridge Direct is simple and straightforward. At Bridge Direct you will be guaranteed an instant decision on all bridge loan applications, 1^st, and 2^nd charges are accepted. You may also be eligible for a loan even if you have bad or adverse credit.

The team at Bridge Direct have over 30 years of experience in the bridging loan sector and will be able to guide you to the best possible deal for you for you and your situation.