The bridging loan: buying property B before selling property A
The bridge loan primarily targets second-time buyers looking for a new property. This loan, available in two main formulas, finances the new acquisition (good B), before the sale of the old one (good A). A mechanism which considerably reduces the debt ratio and proves to be interesting, if and only if, the sale is carried out as quickly as possible, within the time allowed without ever exceeding 2 years.
How does a bridge loan work?
Serving as a joint between two homes , the bridging loan allows an owner to acquire a new property, without having sold the previous one. Called “relay-purchase” or “purchase-resale”, it translates, in fact, by the repurchase of the credit in progress with a bank and the addition of the funds necessary for the new acquisition.
For security reasons, the banking establishment does not take into account the entire value of asset A: thus, the credit is based on 60 to 80% of its value , in order to cover a possible fall in the sale price. Here, the key is to correctly assess the home to optimize the duration of the bridging loan.
What are its different forms?
The associated bridge loan: the most widespread formula
The associated bridging loan is accompanied by a traditional amortizable loan.
If good A is less valued than good B, the bridging loan can be associated with a second loan, to complete the financing of the latter. Built on the basis of a traditional amortizable loan, the monthly payments reimburse the interest on the bridging loan, as well as the interest and amortization of the capital of the second loan: all the costs are simply smoothed in order to obtain almost identical monthly payments.
The dry relay loan
If property A is valued at the same height (or even higher) than property B, the bridging loan does not need to be accompanied by additional mortgage , since the owner only needs an “advance” from the bank, to acquire the new home. He will settle the capital of the capital with the money from the sale of his property A.
The total franchise bridge loan: formula not to exceed its debt capacity
It is accompanied by an amortizable bridge loan with deferred amortization.
This arrangement consists in reducing the monthly charges during the period when the property is not yet sold. To do so, interest is not reimbursed monthly. The deductible period can extend up to 12 months.
The borrower will repay the borrowed capital and interest in one installment at maturity.
This financing is expensive in the long term but it has the advantage of being more timely in terms of cash.
How are repayments of a bridging loan organized?
Whether it is a bridging loan, dry or associated, there are two possibilities of repayment :
- With partial deferral , the monthly payments are made up only of interest from the bridging loan (with insurance contributions). The capital being reimbursed on the resale of asset A.
- In total deferral , the repayment of the bridging loan is made in full on the resale of asset A.
If the bridging loan is accompanied by a conventional loan, the latter can also be adjusted according to the personal situation of the borrower. For example, with a deferred amortization formula, the monthly charges are reduced until the sale of asset A.
After the deadline, the borrower is liable for the sums due . If they are not honored, the bank can initiate legal proceedings against it and register it in the file of credit repayment incidents to individuals.
To avoid this situation, it is preferable to act before the maturity of the bridging loan , request an extension from the lender.
The role of the credit broker in this transaction?
Beyond his banking knowledge, he also has banking techniques and can establish with you a simulation allowing you to know which financial transaction meets your expectations and your situation.
You will know what type of bridge loan to consider for how long, the amount that the bank can lend you, the rate it is possible to obtain, the cost of your credit for this operation.
Consider the purchase of a Good B before the sale of Good A must be prepared in the best conditions . This financing plan deserves special attention because it can consist of several loans (bridge loan, complementary loan with deferred payment and a conventional loan).
Our network of free brokers can enlighten you and establish your personalized financing plan for you.