While bridging loans are growing in popularity with borrowers, it also means they should understand how a bridging loan calculator works to appreciate whether this type of finance is for them.
There are several reasons why bridging loans are growing in popularity and this is partly down to high street banks, for example, tightening their lending criteria.
It’s much easier accessing bridging finance, though you will need a security property to access a deal.
By doing so, you will be accessing a large amount of money in just days or weeks so you can then complete a property purchase if you need to buy a home while you sell your current property.
Bridging finance is also a popular method of raising funds for property developers to buy and develop a property and also for landlords to refurbish a rental home.
However, bridging finance is not just about developing and buying property as they can be used for just about any purpose.
These may include paying a tax bill or buying stock for a firm’s promotion – the list is literally limitless.
Bridging loan rates UK vary widely
The first thing that the calculator will highlight is that bridging loan rates UK vary widely between lenders.
Again, there are reasons for this but each lender will have its own criteria over how much it will loan.
Other issues that dictate a loan’s rates include:
- The size of the loan
- How long you need the loan for
- The value of the security property.
It also needs to be appreciated that a UK bridging loan rate will be expressed as a monthly figure and not an annual amount.
The bridging loan rates being offered to you will also depend on whether you have an open or closed bridging loan.
The difference between the two could see a big variance in the rate since an open loan means you do not know how and when you are able to settle the debt.
A closed bridging loan means you do know when you’ll have the funds to pay off the loan.
Obviously, for a bridging finance lender, the borrower who has a timescale in mind and will have funds available is a more attractive prospect and these loans will attract lower rates.
Access a bridging loan UK
So, before you actually access a bridging loan UK, you’ll need to appreciate what your exit plan is and the loan calculator will illustrate how much the loan will cost.
Also, you will need to consider whether you want the interest rate on your bridging loan to be paid:
- On a monthly basis: The interest is not added to the loan balance
- Rolled-up: You don’t pay interest until the loan is due
- Retained interest: The interest is covered until an agreed date when the full sum is repaid along with interest.
The bridging loan calculator will also indicate how much you are able to borrow from a particular lender.
Most lenders will have a bridging loan calculator
It’s helpful too that most lenders will have a bridging loan calculator on their website so you can easily calculate how much a loan will cost, whether it’s for £5,000 or £1 million. Some lenders will restrict who they lend to but all will have a loan-to-value (LTV) that they work with when considering a finance application.
The calculator itself will need various details filling in including the property’s value and whether there is an outstanding mortgage.
You will need to know how much you want to borrow, how long the loan will be in months with most lenders offering 12 month terms, but some will offer two years.
There will also be an interest rate which will vary on the loan required along with a lender’s arrangement fee, which is an administration charge.
In addition, the calculator may have an exit fee which will need to be paid when you repay the loan. It’s important to appreciate that not every bridging loan lender will demand an exit fee so it may be worth shopping around if this is an issue.
While there are advantages for accessing bridging finance, one of the downsides is that the cost tends to be higher than from high street banks because they are easier and quicker to access.
However, it’s important that you complete the bridging loan calculator to be reassured that you understand how much the loan is going to cost and should you need more help and advice about the details, then you should speak with the experts at The Bridge Crowd.