Are you planning to purchase a new property but still waiting for the sale of your current one? A bridging loan could be the solution to secure the funds required to close the deal. A bridging loan is a short-term financing option that allows you to bridge the gap between buying a new property and selling your existing one. In this article, they’ll guide you on how to calculate your bridging loan payments in five simple steps.
Step 1: Determine the Loan Amount
The first step to calculating your bridging loan payments is determining the loan amount you require. You can do this by calculating the difference between the purchase price of the new property and the amount you expect to receive from the sale of your current property. Keep in mind that lenders typically offer bridging loans of up to 75% of the combined value of both properties.
Commercial Trust professionals state, “Monthly payments for such loans can vary greatly.”
Step 2: Determine the Loan Term
The loan term is the length of time you will need the bridging loan. Bridging loans are typically offered for a period of between one month and two years. The loan term will depend on the expected sale date of your current property. It’s important to consider this carefully when you calculate your bridging loan payments. If you need the loan for a longer period, the interest rate will likely be higher, increasing the total cost of the loan.
Step 3: Calculate the Interest Rate
Bridging loans generally have higher interest rates than traditional loans because they are short-term and carry a higher level of risk for the lender. The interest rate will depend on the lender and your creditworthiness. An online loan calculator can estimate your interest rate and payments.
Step 4: Add up the Fees
In addition to interest, bridging loans may come with a range of fees, including application, valuation, and legal fees. These fees can add up quickly and significantly impact the total cost of your bridging loan. Be sure to factor in all fees when calculating your payments. You can negotiate with the lender to reduce or waive some fees. Additionally, it’s important to read the loan agreement carefully and understand all its associated fees.
Step 5: Calculate Your Monthly Payments
Once you have determined the loan amount, loan term, interest rate, and fees, you can calculate your monthly payments using an online loan calculator. You can also use a spreadsheet or a financial calculator to calculate yourself. It’s important to remember that the total cost of the loan includes both the principal and the interest and any fees. By calculating your monthly payments, you can better understand how much you will need to pay each month to repay the loan. This will help you budget accordingly and avoid any financial surprises.
Bridging loans can be a useful tool for property buyers waiting to sell their existing property. When calculating your bridging loan payments, consider the loan amount, loan term, interest rate, and fees. By doing so, you can better understand the total cost of your bridging loan and make an informed decision about whether it is the right financing option for you.