Finance is an essential factor in real estate. While these houses have very high market values, it may not be easy to liquidate the asset. At that time and when cash is urgently required, bridge loans come in to save the property owner. Bridge loans are taken by realtors to acquire new homes when their current one is not yet sold.
They take the loan and buy property to be repaid later when their house is sold. This type of finance is utilized by both individuals and companies to get cash when need be. Is there a downside for a young one seeking to invest in Singapore, or are there benefits to this kind of loan? Let’s find out.
Benefits of Bridge loans
In business, time is money. You do not have all the time to wait or make business decisions. The more you hesitate, the more money you lose. That is why sometimes you have to take that early leap to buy time.
For instance, you may own a house and have put it up for sale. However, it may take time before you find a suitable buyer. During this waiting period, you need cash flow for your business to grow. The bridge loans help you with that.
The bridge that cash-flow gap. As a business entity, such gaps can harm your enterprise’s ability to be a going concern. That is why bridge loans are significant because they save the business’ continuity plan.
Business flexibility is pegged on the availability of cash. The ability to buy and sell on time makes a business stable and flexible. When you lose the power to do these two (purchases and sales), your business loses the power to be flexible and durable.
The bridge loan gives you back the power to liquidate your business when need be. For that reason, you get enough cash to run errands and cover overhead costs as you await the house to be sold.
The advantage to good credit ratings
If you have a good credit rating, the bridging loan will quickly be issued to you. You can use that money to buy a new home as you patiently wait for the right deal to come your way. Those with poor ratings will find it hard to access this kind of loan.
Bridge loans are faster approved. Besides, the application process is simple and convenient. The money is also released quickly as it is treated as a fast loan. But this benefit comes at a cost. Let’s see the price of a bridging loan below.
Why you may have to reconsider Bridging loans
Bridging loans are good to help you sort your current cash needs. Besides, you can use the money to purchase a new home for your stay. But at what cost do you get bridging loans? Read on.
Bridging loans are quick loans and attract high-interest rates. In the long run, you will pay heavily for acquiring this loan. But again, without the loan, chances are; you may lose more money than the interest rate you’ll pay.
That is why sometimes it may be wise to take a loan. With your new house, you have several options to generate more income. Perhaps that house may find a buyer faster than the other one. You just never know.
Lenders do not offer blank check loans. They put limits to these loans, and that may mean getting a lesser mortgage than you need. What criteria do they use?
Apart from your credit score and debt-to-income ratio, they consider the value of the house you own and that which you want to acquire. Therefore, 80% of the combined discount is the upper limit of the loan you will get.
If that value is less than what you require, the loan may not be as effective as it should have been. But that can be sorted out with time after you sell your property for profits.
Bridge loans help when you require quick cash while holding property and waiting for it to sell. They’re fast to acquire but attract higher interest rates.