What Are The Pitfalls Of A Bridge Loan ?

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What Are The Pitfalls Of A Bridge Loan ?


Apartment Listing  

Bridge loans are convenient means of short term financing that help potential homeowners to go in for a second home without having to sell the first time outright.

In this way, they can 'bridge' the need between a longer term financing requirement and a shorter term need that is covered by the bridge loan.Further, the bridge loans can be financed on the basis of the first home without having to take further mortgages on the loan. However, with all these benefits there are some pitfalls for bridge loans as well. For starters, the interest rates on bridge loans are much higher than those on normal loans. This increases the cost of owning a second home by a few percentage points as compared to taking a normal mortgage on the second house. Next, the tenor of the bridge loans is such that one cannot be complacent about paying the loan back over an extended period of time. Bridge loans mature faster than the normal loans and hence, one needs to be careful about paying it on time or otherwise, face heavy penalties for nonpayment.

Bridge loans are often riskier for the lenders and hence they carry a premium in terms of processing fees as well. Because of this, it becomes difficult for the borrower to get a higher percentage of the loan as actual disbursal amount. Though many lenders are trying hard to minimize the administrative costs involved with bridge loans, nonetheless, the very nature of these loans is such that one has to pay out higher fees.

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What Are The Pitfalls Of A Bridge Loan

 
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Home Loans :

What-Is-A-Bridge-Loan      A bridge loan is a short term loan that is used to finance investments made for the near term. As the name implies, a bridge loan is used to bridge the gap between longer term financing needs and the very near term needs. A bridge loan is an intermediary between what is required now and what is required for financing over a period of years. More..



 
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What Are The Pitfalls Of A Bridge Loan ?