Open Bridging Loans An open bridging loan is a type of property finance which is available to borrowers who are looking to purchase a property before the exchange of contracts to sell an existing property is completed.
An open bridging loan is a type of property finance. It’s available to borrowers who are looking to purchase a property before the exchange of contracts to sell an existing property is completed.
When Are Open Bridging Loans Needed?
Open bridging loans are useful when:
- You have equity tied up in a property, but you are uncertain as to when the property may be sold.
- You need a short-term financial solution.
- Homeowners need to “bridge the gap” until another source of long-term finance is available.
Open bridging loans can come in handy if you are a property owner and you are looking to release the equity that is in an owned commercial or residential property before a sale has been arranged. If you have been part of a sale chain which has been broken, for example, in situations where a property owner has found themselves let down by a buyer who has had second thoughts or are unable to complete a purchase due to unforeseen circumstances, then an open bridging loan is more suitable to your situation.
If you are not sure when your finance from the sale of your property or a mortgage agreement is likely to become available, then an open bridging loan may be the best option. This uncertainty can come from legal hold-ups when it comes to selling a house, or if your mortgage provider is taking longer than you had expected.
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What Is A Bridging Loan Exit Strategy?
A bridging loan exit strategy sets out guidelines as to how the loan will be repaid. If you don’t have a clear exit strategy in place and need to take out an open bridging loan, you will need to pay the loan back on the exact due date. You will need to know how you are going to manage to repay the loan.
You may well be relying on the sale of a property to be able to pay back the loan, but don’t have a buyer in place or a fixed date on the completion of the sale. It is possible, but rare, for personal loan lenders to offer open bridging loans to borrowers with no fixed repayment date. This allows the borrower more flexibility and offers them freedom from substantial penalties they may encounter if certain circumstances prevent them from meeting set terms.
For more information on what personal loan lenders require, visit our FAQ’s page.
An Open Bridge Loan Example
A typical bridge loan example is when it’s used to refurbish or renovate a property before you arrange a mortgage. A bridge loan open or closed, offer the funding and peace of mind to cover you for any shortfalls or unexpected costs that may occur during this time.
Unlike a closed bridging loan that is only required for short-term and fixed length periods, open bridging loans are not usually expected to be paid back within a solid-set time period. The extra flexibility and increased risk that come from a bridge loan lender’s perspective mean that open bridging loan rates are a little higher than closed bridging loan rates.
What Are The Risks With Open Bridging Loans?
Open bridging loans are typically seen as being riskier. This means:
- If you are interested in taking out a bridge loan open instead of closed, you may need to prove that you will be able to repay it in the near future to be granted the loan.
- They can be more expensive in the long run.
- There are often higher interest rates added to cover any potential risks.
- As open bridging loans carry more risk, many bridge loan lenders are less willing to provide them.
When you apply for an open bridging loan, it is usually the borrower’s decision when it comes to deciding on much to pay back and when. Many products offer open-ended and more convenient repayment terms and the costs that typically come with a closed bridging loan are avoided.
As so many lenders regard open bridging loans as being riskier, personal loan lenders will need to be confident that you can pay the loan back. Depending on the terms you chose and decided on at the start, you will normally be expected to pay back the loan anywhere between six or twelve months. If you fail to repay the loan, then additional penalty fees may be applied. You can, of course, repay it earlier and some bridge loan lenders will allow you to pay back all or some of the interest that was applied to your loan before you pay back the full amount.
Open Bridging Loans Advice
Before you set out to get a bridging loan, it is recommended that you research a bridge loan example that would suit you and seek the advice of a solicitor. This way, you can get all the legal advice and information you need before you sign any legal documents. It is also recommended that you seek financial advice from a respected and authorised mortgage broker. They are able to provide the correct and up-to-date information and advice when it comes to “buy to let” property investments.
Is A Bridge Loan Open Or Closed Right For Me?
If you’re unsure whether an open bridging loan is for you, then get in touch to discuss your circumstances in confidence with our friendly and experienced team today. Submit your enquiry at any time and we will aim to get back to you within 24 hours.