If you want to take out a short term loan to bridge your financial obligations, you must look at the rates and fees before taking out a loan. The bridging loans cost vary from provider to provider. Here in this quick guide, we have gathered all the typical fees and costs you have to pay when taking out bridging debt. It will help you in deciding whether this type of debt is the right solution for you or not.
What Is A Bridging Loan?
It is a short term solution for your financial problems. It is a fast and flexible funding source and provides you funds until you secure long term funds. However, as these are taken out for a short period, the bridging loan interest rate is higher than standard loans and typical mortgage loans. The interest rate can vary from 0.5% to 2% per month, but it can differ depending on the lender you choose.
Bridging Loan Interest Rates
The interest rate of bridging finance highly depends on the value of the property you are using as security, exit strategy and credit score. Most lenders offer a maximum of 75% LTV, and the interest rate also depends on LTV. For example, for 50% LTV interest rate starts from 0.43% and for 70 to 75% LTV it is 0.75%. The interest rate for commercial properties is high, up to 0.85%, because lenders find them riskier.
In addition, you can pay the interest rate as serviced, retained or it can be added to the loan amount. It means you can pay interest in monthly installments or pay it as a lump sum amount at the end of loan terms. You should ask your provider about the interest payment method before taking out a loan.
Factors Affecting Bridging Loan Cost
There are numerous factors that can affect your borrowing cost, including:
Loan size
Type of loan
Loan to value
Loan terms
Type of security property
Credit history
Purpose of loan
Exit Strategy
Bridging Loans Fees And Costs
Other than the interest rate, there are several extra fees that you should consider when applying for bridging finance. Again, depending on your loan requirements and your lender, these charges can be high or low.
Here are some fees that are associated with bridging debt:
Arrangement Fee
Typically, the loan arrangement fee ranges between 1.5% to 2% of the loan amount. It is added to the loan amount, and you have to pay the lender for arranging a loan.
Valuation Fee
When you apply for a loan, the lender has to carry out a valuation of the property you are using as security against the loan. Bridging lenders usually have a lender of surveyors for the valuation. The valuation fee depends on the property's location, the surveyor's availability, and how quickly you need funds.
Broker Fee
You can get a loan from direct lenders or through brokers. If you are taking out funds through a broker, you have to pay a fee for their services.
Legal Fee
Bridging loan providers usually have a panel of approved solicitors who work on their behalf. However, some lenders also allow solicitors to work on the borrower's behalf too. As a borrower, you have to pay a legal fee to complete the process of borrowing.
Exit Fee
Some lenders charge an exit fee in case you have to exit the loan and repay the loan amount before the maturity date. The amount is usually 1 to 2% or equals the monthly interest rate.
Now that you know the fees and interest rate of bridging loans UK, you should consider all these things before making a final decision. These costs and fees are added to your borrowing cost, so you should take them into account to find out whether you can afford to repay the loan or not.