A closed bridging loan is one in which there is a defined repayment date. This is different to an open bridging loan, where there is an open-ended payment date.
What is a closed bridging loan?
For many property purchases that need a bridging loan, it is easy to set a time when payment will be made. One example is where a buyer needs to complete the purchase of a house before they have completed the sale of an existing house. If the completion of their sale has a known date which is after the completion of the purchase of the new house, then that date can be the payment date for a closed bridging loan.
Closed bridging finance is commonly used by buy-to-let landlords who have arranged long-term finance but are waiting for their commercial mortgage to complete. In order to buy property quickly, a closed bridging loan can be arranged then repaid as soon as the commercial mortgage funds are available.
Many properties are bought at auction and usually require the sale to be completed within four weeks. Even if a buyer has successfully applied for a long-term mortgage, the funds may not be available until after the four-week period. Most closed bridging finance loans can be arranged and the funds made available in a matter of days, and the bridging loan can be used to complete the purchase.
When closed bridging finance is appropriate?
The advantage of a closed bridging loan is that they are generally available at lower interest rates than open loans. For people who know when funds will arrive to repay the loan, they are a good choice. Borrowers need to be certain though about the repayment date, as there are harsh financial charges if the borrower cannot pay off the loan on time.
What can closed bridging finance be used for?
Most closed bridging loans are for property purchases, but they can also be used to refurbish property. If a property is unfit to live in, then a standard mortgage may not be available. A bridging loan can provide the funds to improve the property, and then a long-term mortgage can be used. However, there are risks in using a closed bridging loan as building work can be subject to delays. If a mortgage offer is conditional on the completion of refurbishments, any delays could attract penalties. To avoid this, an open loan may be better.
Businesses can use a bridging loan to expand and purchase equipment or stock. A bridging loan can also help with expenses during a seasonal quiet period. To obtain a bridging loan, a business needs to prove that the money will be available to pay back the loan within the agreed period. If an exact date is not known when the funds will be available, an open loan is a better option.
How to arrange bridging finance
Whether open or a closed bridging finance is better for your situation, talk to Ascot Mortgages. We can advise you on bridging finance and find the best possible provider.