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Long and Short Term Bridging Finance Options
Bridging loans are designed as a short-term bridge loan - but knowing exactly how long you can borrow for depends on the lender and the project!
Here we'll explore bridge loan terms, and what you might expect as a minimum and maximum length.
What are the Standard Terms on Bridging Loans?
Most bridge loans are due for repayment in a year, or just a few months, hence being referred to as a short-term bridge loan.
If you need to borrow for longer, there are options up to around two years as standard. More specialist bridge loans up to three years can be negotiated with the help of an experienced broker.
There isn't a specific short term bridge loan, as this type of financing is always short-term in nature, so anything under a year is typical.
Some lenders specialising in short-term bridge loan products have a minimum loan term, often of one month, but bridge loans can last for just a couple of weeks if you need a fast-financing option and are waiting for a mortgage, for example, to be completed.
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Is There a Maximum Bridge Loan Term?
Lenders will usually offer up to 18 months, on a short-term bridge loan with some agreeing to two years provided the project is viable, and the exit strategy will cover the interest for this period.
Longer bridge loans of up to 36 months are available, but this is a niche product and not available from many lenders.
How Quickly Can I Arrange a Bridging Loan?
Many people choose a bridging loan because it takes very little time to organise. A short-term bridge loan can run for a few days pending any valuations.
Bridge finance is much faster than a mortgage since the lender needs to assess the exit strategy rather than your income, affordability and outgoings in as much detail – part of the appeal of a short-term bridge loan.
Most short-term bridge loan agreements take around five days to two weeks to finalise and get the funds into your account.
What Happens if I Can't Repay a Bridge Loan on Time?
If you find that something goes wrong and you cannot pay the bridge loan back at the end of the term of the short-term bridge loan, there are a few options:
- Some lenders will agree to an extension - if there is only a short amount of time required.
- Refinancing might be a better option if the lender refuses an extension.
- Additional fees are likely to be incurred.
- If you cannot refinance or repay the balance on a short-term bridge loan, and the lender refuses an extension, your security asset or property is at risk of repossession.
How Does Interest Work on Bridging Loans?
There are a few different ways a lender might charge interest on a short-term bridge loan:
- Monthly interest means you pay the interest as you go, like on a standard interest-only mortgage.
- Deferred interest is rolled up into the loan balance, with the full value payable at the end of the short-term bridge loan term.
- Retained interest is calculated for a fixed period, payable at the end of the short-term bridge loan period. The interest is calculated before the funds are transferred, depending on how long you need the funds on a short-term bridge loan.
Do I Need Open or Closed Bridging Finance?
If you're looking for a longer-term bridge loan, and cannot be sure when your exit strategy will come into play, you need an open bridging loan. That means you have greater flexibility, although there will still be a finite end of term date.
Closed bridging finance is lower cost, but there is a specific settlement date, and you must be certain you can repay by that point for either a short-term bridge loan or a longer term.
How Can I Get the Lowest Rates on Long-term Bridge Lending?
Each lender is different, and rates vary considerably across the market, but you will achieve the lowest offers on a long or short-term bridge loan if:
- You have a viable, high-value exit strategy with documentation such as an agreement in principle in place to solidify its reliability.
- There is adequate security in place, such as a higher value property, which would be easy to sell in a repossession scenario.
- Your credit rating is clear, with no serious issues.
- You have experience in the same sector, usually property development, and have completed other projects before.
- The deposit level is at least 40%.
Expert Advice from the UK Bridging Loan Experts
If you're looking for a particularly long bridging finance agreement, or a short-term bridge loan the support of an experienced, independent broker is vital.
Contact Revolution Brokers today on 0330 304 3040 or email us at [email protected] to get your application started!
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The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.
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