Bridge loan: how it works and its benefits

It is common that the owner of a property may consider buying another property for reasons such as a change of city, a change in lifestyle or simply because he has found a new apartment or a new house that is more suited to his tastes and needs. When this happens, the most common option is to sell the first home.

The difficulty arises when you decide to make this second purchase without having finished paying the mortgage on the first property and without having sold it yet. But is this really a problem? The truth is that it is a more common situation than many people imagine, which is why alternatives have appeared to facilitate this procedure, as is the case of the bridge mortgage.

Here we are going to tell you what a bridge loan consists of and why it is an alternative to take into account when acquiring a second home without having sold the first one.

What is a bridge mortgage and how does it work?

You are probably wondering what a bridge mortgage is. And the fact is that, despite being a very effective alternative for those who want to buy a property without having sold the previous one and while they are still paying the first mortgage, the truth is that it is still a little known term.

Well, a bridge loan is a type of loan that allows the above-mentioned procedure to be carried out. For this purpose, the bridging loan unifies both loans until the first property is sold, offering the mortgagor a term of two to five years to complete the whole process.

How does a bridge mortgage work? It should be noted that there are three types of installments that can be taken when applying for a loan of this type:

• Normal installment: this is the one that offers the possibility of amortizing the capital and interest at a normal rate.
• Installment with capital deficiency: it is only necessary to pay the interest of the loan until the first house has been sold.
• Special reduced installment: the amount of the installment to be paid while enjoying the bridge loan is lower than that which will have to be paid after the sale of the first property. A high percentage of this installment is destined to the payment of interests.

When is it useful to take out a bridging loan?

Now that we know what a bridging loan is, it is important to analyze in which situations it is beneficial to apply for a mortgage with these characteristics. Among the most outstanding ones:

• When you have found a new home you want to buy but have not yet managed to sell the previous one.
• When you think that the first property is going to be easy to sell because there is a deadline to finalize the transaction.
• When you can afford to pay the installments even without selling the house.
• If an earnest money contract has been signed and the closing date is approaching when the first home has not yet been sold.

What are the conditions for taking out a bridge loan?

We already have the basic information about what a bridging mortgage is and it is time to know what are the requirements to be met to apply for it.

• First of all, it is necessary that there is a probability of sale of the first property. For this, the banks that offer bridge mortgages analyze factors such as the location, the purchase demand in the area and the probability of sale.
• The ability to pay is also taken into account, i.e., whether the applicant could pay the bridge loan installment without any problem. For this purpose, it is assessed whether the installment exceeds 30% of the monthly income.
• The amount amortized is also considered, that is to say, that a minimum amount of the first mortgage has been paid in order to be able to offer this other type of loan. This amount may vary depending on the entity.
• Finally, other mortgage performance conditions similar to those taken into account when applying for a first loan are taken into account, such as employment situation and stability, payment capacity and savings or the applicant’s age, among others.

Advantages and disadvantages of the bridge mortgage

The main advantages that a bridge mortgage offers to customers are that it gives them more time to complete the sale of the first home while they can already enjoy the second property, as well as offering great facilities to pay the installment until the sale is completed.

But there are also some drawbacks, such as the notorious increase in installments in those cases in which, after the stipulated period, the sale has not yet been completed, as well as the risk that the first property may be devalued over time.

Banks offering bridge loans

Now we have all the necessary information and we only need to know the banks that offer the bridge mortgage.

BBVA bridge loan

On the one hand, we can find the bridge loan from BBVA bank with the conditions indicated above. In addition, it is possible to calculate the payment requirements and installments of a bridging mortgage at BBVA through the simulator of this bank.

ING bridge loan

It is also possible to apply for the bridge mortgage from ING bank. In this bank you can receive more information about this type of credit and calculate the installments you would have to pay through its mortgage simulator.

Santander bridge loan

Another alternative is to apply for a bridge loan from Santander bank. Among the benefits offered by this bank are its financing up to one hundred percent of the price of the second property, in addition to offering a maximum term for the operation of 30 years.

Caixabank bridge loan

If you apply for your bridge mortgage at Caixabank you should know that this bank offers different types of mortgage loans with options for different types of customers.

Bankinter bridge loan

To consider the Bankinter bridge mortgage it is necessary to contact the bank in order to receive all the necessary information.

Sabadell bridge loan

Calculate your Sabadell bridge loan in its loan simulator.