Mortgage Dictionary -> Bridge Loan
For some people who require financing quick, or have bad credit, getting a traditional mortgage loan right away for a home is not an option. The only option for them is to get what is called a bridge loan. If you're in a similar predicament and are considering the idea of getting a bridge loan, you'll want to read on and discover all of the facts about this special type of loan.
What is a Bridge Loan?
Unlike mortgage loans, which can have repayment terms of 15 or 30 years, the bridge loan is a short-term loan that must be paid back rather quickly usually anywhere from 2 weeks to 3 years. The loan is considered a short-term solution and is expected to be replaced with longer term financing. Once the permanent financing is achieved, the bridge loan is paid off and is left behind.
Why Bridge Loans Are Useful
They're Easy to Obtain. Getting long term financing for anything will inevitably require a lot of paperwork and quite a bit of review time on the part of the lender. If you're looking to buy a house quickly, then you really don't have the time to wait. The bridge loan provides an acceptable means of securing a house quickly because it requires little review time and paperwork.
They're Fast. Buying a house has become a very competitive thing, so striking quickly is absolutely essential. A bridge loan allows you to do just that. You'll be able to secure the house quicker than someone else using a traditional loan would be able to.
Why Bridge Loans Aren't So Great
Higher Interest Rate. Many traditional loans feature an interest rate of around 6 or 7%, whereas bridge loans are usually double this because of the risk involved in such a loan for the lender. This is a good example of why bridge loans aren't always the best choice.
More Expensive. Even if the bridge loan is only temporary and is paid off quickly, it's still more expensive then going with a traditional mortgage loan, which is why it's always a good idea to really think through getting a bridge loan before you do it.