Bridge Loans
If you do not know what is a bridge loan, then let us tell you that a bridge loans are a type of short term loan typically taken for a period of 2 weeks to 3 years pending the arrangement of larger or longer term financing. This only acts as an interim financing for an individual or business until permanent or the next stage of financing can be obtained. These kinds of loans are typically more expensive as interest rates are high, points are high, and there are costs and fees involved. It is easy to get bridge loans as they require very less documents.
Bridge loans in real estate are required to quickly close on a property, retrieve real estate from foreclosure, or take advantage of a short-term opportunity in order to secure long term financing. Usually if you have taken bridge loans on a property then they are typically paid back when the property is sold, refinanced with a traditional lender, the borrower's i.e your creditworthiness, when the property is improved or completed or there is a specific improvement or change that allows a permanent or subsequent round of mortgage financing to occur.
A bridge loan is a non standard loan obtained due to short term or unusual circumstances.
The interest rates in bridge loans are usually 12-15%, with a usual term of up to 3 years. 2 to 4 points may be charged. Loan-to-value ratios generally do not exceed 65% for commercial properties, or 80% for residential properties, based on appraised value. A bridge loan may be closed, meaning it is available for a predetermined time frame or open in that there is no fixed payoff date (although there may be a required payoff after a certain time). This kind of loans is usually not offered by most of the banks because of their speculative nature. Since the banks have to justify its lending practice to its investors and government regulators they tend not to offer these loans. Hence these loans are likely to come from individuals, investment pools, and businesses that make a practice of the higher-interest loans.
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Last Updated On: 2011/05/04
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