Bridging Loans

Bridging loans or gap loans are loans used to bridge the gap between two transactions. Duh! Pretty simple, eh? Unfortunately not.

First of all, sellers would not be in a position to need bridging loans if everything they were planning had gone as they had wished.

Second, bridging loans cost money, in the form of additional interest over and above that of a longer term loan and the balloon note of repayment sitting out there at the end of the loan.

Caution dictates that a seller should wait until his/her current home sells before buying another house. However, whether due to relocation, change in family or job-related circumstances, or simply a slowing market for home sales, people sometimes find themselves with two houses. These are typical situations where sellers will need bridging loans. Bridging loans enable a seller to borrow money either unsecured, but with a pending contract for sale or against the equity in her current home until it sells.

Bridging loans usually include a balloon note that has to be repaid at the end of loan period. This can be disastrous if the home used for equity does not sell or does not sell for as much as necessary.

continued at: Bridging Loans