The bridge loan is an effective solution to fill a cash shortage. Generally, a dry bridge loan is more expensive than an associated bridge loan.
On the other hand, whatever the bridging loan chosen, it remains attractive if the sale of the property takes place after a maximum of one year, otherwise its cost price is very high.
The associated bridge loan allows you to buy new real estate before selling your own
Explanation and definitions of the associated bridge loan
This bridge loan, as its name suggests, is generally associated with conventional credit. That is, the sale of the borrower’s current property does not allow him to finance his new property in full. He must therefore take out additional credit.
For the banks, it is a question of proposing to the buyer a financing plan composed of the following two elements:
- A bridge loan
- Long-term credit
This is what we commonly call a bridge loan associated with a long term loan (or bridge loan backed by a long term loan). More concretely, the bank advances you 60 to 80% of the total amount of the sale of your current property, which must be reimbursed within 12 months maximum.
This advance can be renewed a second time for the same duration. Consequently, the buyer has more time to sell his property, between one and two years.
As long as the sale of the current asset is not carried out, the purchaser must repay the monthly payments of the long term loan and the interests of the bridge loan, the latter being a loan in fine. Once the property has been sold, the bridge loan is then fully reimbursed by the amount received from the sale of the property and the purchaser will only reimburse the monthly payments associated with the long-term loan.
Application of the bridge loan via an example
In order to fully understand the associated bridge loan, please read the example below. You have real estate with an estimated value of $ 200,000. The new property you want to buy is $ 300,000.
Your bank will grant you a bridge loan of around $ 140,000, which is equivalent to an advance of 70% of the value of your current property. You take out a mortgage for the entire purchase price of your new property, namely a loan of $ 300,000. This loan of $ 300,000 includes the $ 140,000 of bridge loan and therefore $ 160,000 of long-term loan.
You have up to two years to sell your property. Until then, you will have to repay the interest on the bridge loan and the monthly payments on your new loan.
Once your current property sold for $ 200,000, you will then recover $ 60,000 and reimburse directly to your bank, all of your bridging loan, ie $ 140,000.
You have several choices to use this $ 60,000: you can keep it (for work or other) or integrate it into your new credit in order to reduce the duration of it or lower the amount of your monthly installments.
TO REMEMBER !
- The associated bridge loan will finance part of your property until your current property is sold
- With the associated bridge loan you have up to 2 years maximum to sell your current property
- Call on Lite Lender, mortgage loan expert, to explain the implementation of the bridge loan