A bridge loan is also known as gap financing. A bridge loan is a short-term loan sanctioned for the borrower who wants to meet short term financial requirements. The tenure of bridge loans is capped at 5 years. The loan amount sanctioned and the interest rate on the loan is calculated by evaluating the repayment capacity of the borrower.
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The key features of the bridge loan are as follows:
See Also: Types of Personal Loans
In India, the bridge loan can be structured in two ways. They are:
If you are using the bridge loan to pay off the existing liens on a property, then the remaining loan amount can be used to make the down payment of your new house. If you avail the bridge loan as a second or third mortgage, then it’s used solely as down payment on a new house.
A borrower must be cautious before applying for a bridge loan and must take care that all his liens are paid off within a year. Instead of taking a bridge loan, it is wise to arrange down payment by selling your shares, mutual funds or assets instead of availing loans. Avail a bridge loan only as the last option, as these are expensive loans.
See Also: Personal Loan In Bangalore
Bridge loans are useful while purchasing real estate. If there’s time lag between the purchase of a new property and the sale of an existing property, then you may avail a bridge loan. Real estate bridge loans are offered to individuals having a high credit score and low debt to income ratio. Bridge loans provide the buyer with the flexibility of purchasing a new house, without selling the existing property. The money received by selling the existing property can be used to settle the bridge loan.
Pros and Cons of Bridge Loans:
Bridge loans are not a very attractive funding option and many financial advisors discourage clients from availing a bridge loan. Bridge loan comes with high lender fees, closing costs, high interest rates and origination fees. Listed below are the pros and cons of availing a bridge loan:
See Also: Personal loan in India
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