What is Bridging Finance?

Does this scenario sound familiar? Mark is planning to move to Pretoria with his family. The plan is to buy a new house from the proceeds of the sale of his current house. However, he will not be able to buy his new house before the purchase and transfer of the old residence is completed.

Fortunately, he doesn’t have to lose the new house. He may take a bridging finance option which will allow him to access equity from his current residence and use it as a down payment on his new residence. Does this sound like an option for you?

You’ve Sold … Now What?

Congratulations, you’ve sold your house! Now, all you can think of is moving on and getting into a new place. The only problem is that a seller of property is only paid the net proceeds from the sale on registration of transfer.  This can seriously hamper your style, especially if you’re in a hurry to get your family settled in a new home. Nobody likes disruption, and a house move is right up there with the major contributors to stress. Living in limbo is even worse! How can you secure that new home?

Registration of transfer is a lengthy process that can take up to three months or even longer. Fortunately, there are registered credit providers who offer sellers like you access to their funds within 24 hours in the form of bridging finance.

Let’s take a closer look at bridging finance.

Interim Financial Solution

Bridging finance is a short-term loan, usually for a period of two weeks to about three years. It is interim financing before a permanent loan or the next stage of financing is settled. Once the permanent loan is acquired, some of the money is used to settle the bridging loan before proceeding with the other financial obligations.

The Ins and Outs of Bridging Finance

Bridging finance is more expensive that other forms of financing. The extra interest levied on the loan takes care of the risk involved in dispensing the loan. The fee paid for processing the loan is also higher than that of conventional loans. There might be other costs that are amortized over a shorter period such as equity participation for the lender. When applying for a bridging loan, the lender may ask for collateral from several sources and a lower loan to value ratio in order to cover the extra cost. Nevertheless, the process of applying for the loan can be quite simple.

Bridging finance is very common in the commercial sector where the borrowers would like to have the finance to close on an opportunity. What about property deals? Many buyers take a bridging loan to buy a well-priced property, quickly. Others take such loans to prevent a foreclosure that could be in the offing.

What About Rates And Taxes?

Remember, there might be other costs which need to be paid for in advance, such as rates and levies. In order for a property sale to be registered with the deeds office, the local council needs to issue a Rates and Taxes Clearance Certificate. Any arrears on your rates and taxes account need to be settled immediately – what if you are not in a position to do this? Like Mark, you’ll need an advance to settle this bill, get the Rates and Taxes Clearance Certificate, conclude the sale of your existing property … and only then secure your new home.

Don’t let a small thing like settling your account with your local municipality stand in the way of moving on to a fresh start in a dream home. The bridging finance loan is paid back once such a property is sold or refinanced with another type of financing. A bridging loan may be all that you need to secure the residential or commercial property of your dreams.

One thing to bear in mind when you’re looking for a bridging loan: it pays to go with a registered credit provider to get competitive rates and fees.

Does it sound like you could use bridging finance to relieve your financial stress? Get in Touch

Yours in Property