The distinct difference between closed and open bridging loans

imagesAre you someone who is out in the market to purchase a real estate property but is facing certain financial problems? If answered yes, you can take help of a bridging loan as this could solve all your financial queries. The two types of bridging loans are open and closed bridging loans and which kind you take out, depends on your present financial condition. Although both types of bridging loans offer you with resources with which you can proceed towards buying a home but yet there are certain differences that you need to take into account. You require giving some careful and watchful thought before taking the plunge into taking out such a loan. You may read on the concerns of this article to know more on bridging loans and how they work.

Bridging loans – What are they and what are the 2 kinds?

Essentially, when you buy a house, the bank lends you enough money with which you can buy the new house even before the previous one gets sold. During such a situation when you fall short of cash, you can take out either the closed bridging loan or the open-ended bridging loan. There are some distinct differences between the 2 kinds, as already mentioned above. A closed bridging loan is where you already have some exchanged contracts but for some indefinite reason, you can’t complete the sale of your existing property on the same day on which you want to purchase the new one.

On the other hand, with a closed bridging loan, you actually borrow money for a short and defined period of time, perhaps for a week or two and therefore the risk that you bear is also limited and quantifiable. The chains of buying and selling properties may be difficult and it might not be possible to get each homeowner complete a sale on a same day. Someone who is stuck in the middle and is willing to bridge the gap through a bridging loan can then move on smoothly.

Are open-ended bridging loans a riskier option?

Immeasurably yes! When you take out an open-ended bridging loan, you buy a house without having exchanged contracts on your present home. Even when you have a buyer, you’re still exposed. When you don’t have a buyer, there’s no such guarantee in the present market conditions that you may get one. You might be left paying a hefty interest bill on both the properties for an indefinite period of time or even longer than that.

Are there alternatives to bridging loans?

Are you someone who is not much intrigued with the idea of taking out a bridging loan and is wondering whether or not there are any alternatives? For getting a closed bridging loan, you may contact a family member. While an open bridging loan could be avoided by reducing the price of your current home to ensure a facilitated sale of the house.

Hence, when you’re stuck in between and you direly need immediate cash, you can take help of the bridging loans as mentioned above.

Jimmy Simond is a founder of Personalfinancetricks.com, he share his immense knowledge of finance in this blog.