Perhaps the most important question after ‘How much can I borrow?’ is ‘How much will a loan cost?’ which is why you will need to know how to use a bridging loan calculator.
Essentially, the calculator will highlight that the amount you can borrow will depend on the type and value of the security property being used for the loan.
The calculator will help work out what the loan will cost, along with the administration fees and, in theory, the amount that is available as a regulated bridging loan – which is a loan that is arranged on a property – is 70% of the security property’s valuation.
With an unregulated bridging loan, this is an investment property where you or your immediate family have never lived, is 75% or 80% of the property’s value.
However, these figures will change depending on the bridging loan lender’s criteria.
The amount you can borrow using bridging loans UK
The amount you can borrow using bridging loans UK will range from several thousand pounds and up to several millions of pounds with the loan running from just one day to one year. Some lenders will offer a bridging loan of two years.
However, it’s important to use a bridging loan calculator because interest payments are not always required to be made on a monthly basis so you could opt to have the loan interest ‘rolled up’.
This means that the interest and other fees can be added to the end of the agreed term and this could add between 5% and 10% to the original loan’s size.
When you agree to a bridging loan, it’s usually for a short-term purpose and you agree to repay it within an agreed time frame. All bridging loan lenders will always ask how you intend to repay the loan.
This means that the bridging loan will be considered as ‘open’ or ‘closed’ for their purposes; a closed loan is one where the repayment date and method are known, while an open bridging loan means the borrower does not know when they will be able to repay.
For most people, a bridging loan is an effective way to bridge the gap when financing the purchase of a new property while their current home is being sold. In this scenario, the bridging loan lender will know that when their client’s home is sold they will have the funds to repay the bridging finance.
Short term bridging loans UK to buy a property
Others may be using their short term bridging loans UK to buy a property at auction, for example, to renovate it and sell on in the very near future.
Other uses for bridging finance include buying stock for a business, renovating a property into a habitable condition so it can be considered for a mortgage or indeed you can use the money for any purpose – including the paying of an urgent tax bill.
One of the big attractions for bridging finance is that they can be agreed very quickly with a decision in principle made within a day or two with some lenders.
A formal offer may take between one and two weeks and full completion of the loan could be from two weeks to four weeks. This is obviously much quicker than the offers from a high street lender, for instance.
Also, high street lenders have tighter lending criteria whereas a bridging finance lender will be relying mainly on the value of your security property.
Calculator will help you work out how much you can borrow
Again, the bridging loan calculator will help you work out how much you can borrow and how much you’ll need to repay.
The calculator will also indicate whether the bridging lender has an early repayment charge but all of them will have fees for administration and the surveyor’s charge to value the security property.
Also, some lenders are quite happy offering a second charge bridging loan if the first charge lender will allow it.
Nearly all bridging finance lenders will have a loan calculator on their website and they are easy-to-use; you simply fill in a few details and the calculator will work everything out for you.
For many people, they will need to appreciate that the interest rates being quoted are per month and not per year which is why bridging finance should only be considered as a short-term funding solution.