If you want to know more about bridging loans and how to use a bridging loan calculator effectively, then this article will help.
For those who may not appreciate it, a bridging loan is a short-term financial product that helps to bridge a funding gap.
Traditionally, they have been used to quickly secure funds for covering a pressing financial need.
This means that people looking to buy a home while they sell their current property have used bridging finance for this purpose because they knew they could repay the loan when the funds from their home sale arrived in their bank account.
However, bridging loans can also be used to buy a property at auction or to pay for refurbishing a run-down property.
Access cash to pay unexpected bills
There’s also growing interest in bridging finance as a way to access cash to pay unexpected bills, including tax bills.
And since there are various rates of interest, depending on the size of the loan, the security deposit is used and various fees and charges, a bridging loan calculator can play a crucial role.
One reason is that bridging finance may not suit everyone but the calculator will reveal whether it is a suitable avenue for an applicant looking for financing and what the total costs will be.
Firstly, we should look at the pros and cons of bridging loans because they are growing in popularity. Among the benefits are:
- Bridging loans can be arranged quickly, usually within two weeks, but some can be done more quickly
- Interest rates for bridging loans will vary between lenders, the size of the loan and other factors
- Bridging loans are a flexible way of accessing finance
- Borrowers can opt not to repay on a monthly basis and simply pay the loan when it falls due
- Bridging loans can be used on those properties that will not attract a mortgage.
Accessing short term bridging loans UK
There are downsides to accessing short term bridging loans UK, which include:
- The cost of bridging finance tends to be higher than traditional loans and mortgages
- Charges and fees: borrowers need to appreciate not only the rate of interest a lender will declare but also the arrangement fee and other fees and charges, including the surveyor’s fee
- Exit: borrowers need to know when they will have the money to repay the loan, so they can exit the loan when it falls due.
While bridging loans have grown in popularity, competition between bridging loan lenders has also grown.
All of these lenders will have arrangement fees and their interest rates will vary.
Even the arrangement fee will vary between lenders and the amount being borrowed, for some, it could be 1%, while for other lenders it could be 2% of the loan.
There also valuation fees to pay because an RICS-qualified surveyor will need to independently value the security property and some lenders have exit fees and if you use a broker, then they will levy up to 1% of the total amount for their service.
Using a bridging loan calculator
It’s this issue of costs and extra fees that make using the bridging loan calculator so important because comparing these costs between two different lenders can be confusing.
That’s why potential bridging loan borrowers should look at the total cost of borrowing rather than just the interest rates and any arrangement fees.
It’s also important to understand what a lender’s default interest rate will be should the loan not be repaid when it is due. This then means the loan is in default and the lender will charge a higher rate of interest.
Borrowers also need to appreciate that the interest rates being quoted are not annually but are for the month, which makes them more expensive than a traditional mortgage.
It helps that most bridging loan lenders will have a loan calculator on their website and they will be upfront about the fees and charges that will need to be paid.
Some will also have a calculator that is aimed at individual and corporate applicants and whether they are looking to buy property, raise capital or refinance a project.
Calculators for bridging loans UK
The calculators for bridging loans UK are straightforward to use, and most sites have examples of how to use them.
Applicants simply fill in how much they want to borrow – expressed as a loan to value, how much their security property is worth and how long they want to borrow the money for.
The calculator will then illustrate what the lender’s arrangement fee will be, how much interest is to be paid and what other charges will be necessary.
The bridging loan calculator will then show what the loan amount will be along with the estimated legal and valuation fees.
Using a calculator makes comparing the offers between bridging loan lenders much easier and highlights whether this type of alternative finance really is suitable for the applicant.
For more help and advice about using a bridging loan calculator, and for more information about this type of finance, then it’s worth spending the time speaking with the experts at The Bridge Crowd.