Bridging Loan Fees
Bridging Loan Fees
Interest rates on Bridging Loans are typically higher than standard or conventional mortgages as they are regarded as carrying more risk to the lender.
Some Bridging Loans are structured so that the borrower pays interest each month and repays the loan at the end of the term. This arrangement suits those who have access to a regular cash flow for the duration of the loan, and who will be able to meet the monthly interest payments. Other options are rolled up interest or retained interest.
The actual rate paid by the borrower will depend on a number of circumstances, including:
Whether it is an open or closed Bridging Loan
The size of the loan in comparison with the property value; the loan to value (LTV)
The type of security provided by the borrower
The credit score of the borrower
Typically the following will apply to Bridging Loans:
Borrowers can sometimes choose to have their interest rolled up. This means that they do not have to pay interest every month but instead pay the rolled-up interest at the end of the term.
This is suited to borrowers unable to make monthly interest payments. In these circumstances, interest is typically compounded. So, while a borrower will not pay interest monthly, the repayment at the end of the term will be larger.
To assist in meeting monthly interest payments, borrowers can sometimes choose to retain from the loan an amount representing a number of monthly interest payments. The borrower can choose the number of months (if affordability criteria can be satisfied). The retained interest is still part of the capital sum of the loan, so interest will be charged on this amount. The total loan must fit within the loan to value. If there is any retained interest which is not utilised by the time of redemption of the loan, most lenders will normally provide a credit for this amount.
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