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The basics of bridging finance

The term bridging finance refers to a type of short term loan that is designed to help homeowners purchase a new home before they sell their current property. These loans typically run for terms of 1 to 12 months, and they allow homeowners to access the equity in their current home to use as a down payment on a new home without having to take out two new loans.

Alternatively, bridging finance can be used to pay the expenses for building a new home while the individual or family continues to live in the current home. For a borrower to qualify for this loan, he or she must have a solid credit rating and adequate collateral, which is usually in the form of home equity. The downside to bridging finance is that it can end up becoming an expensive proposition if the current home does not sell as quickly as anticipated.

The term bridging finance refers to a type of short-term loan. Typically bridging finance is used to help homeowners purchase a new home before they sell their current property. Alternatively, bridging finance can be used to pay the expenses for building a new home while the individual or family continues to live in the current home.

HOW BRIDGING FINANCE WORKS Bridging finance works by allowing homeowners to carry the balance of their current mortgage over to a new loan, which is the bridging loan. The specific amount of the new loan is calculated by adding the balance of the current mortgage to the price of the new home and subtracting the estimated selling price of the current home from the sum. The remaining amount is the ongoing balance, which is equal to the principal of the bridging loan. The typical bridging loan requires only a monthly interest payment. Once the old home is sold, any unpaid interest from the bridging loan is added to the mortgage of the new home.