Types of Bridging Finance

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Types of Bridging Finance
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There are a few different types of bridging finance available, and whilst they are all designed to offer short term finance, but how they are secured and repaid can vary. For more information about the types of bridging finance available, and which would be most suited to your circumstances please get in touch.

Open Bridging Finance

As you can imagine, open bridging loans are quite the opposite to closed bridging loans. Open bridging loans are more flexible and most suitable for people who are uncertain about when their finance will be available. For example, people may face legal hold-ups when it comes to the sale of a house.

When you’re unsure when your finance is going to be available in the future, open bridging finance may be a suitable financial solution to you. Open bridge finance provides you with more flexibility over closed bridging loans and makes sure that they avoid any penalties if circumstances prevent them from meeting the terms.

However, it’s important to consider that open bridging loans may be more expensive due to high-interest rates and because of the risk they carry.

In some cases, lenders are less willing to provide open bridging loans because of the risk they carry. As a result of this, borrowers will need to do more to prove that they will be able to repay in the future.

Open Bridging Finance Example

Your property is on the market for sale but as yet not sold. At the same time however your dream property has also just been put up for sale and has had lots of interest. An open bridging loan can release the equity in your house for a period of time allowing you to purchase the desired property before selling your current property and repaying the bridge.

Closed Bridging Finance

A closed bridging loan is a form of finance where the borrower has a clear and credible repayment plan or exit strategy in place. This can be from either selling an old residential property or through the mortgage agreement on a new property – anywhere where it’s guaranteed that the funds borrowed will be paid back.

In some circumstances, some people may know when they will have funds available to pay off the closed bridging loan. For example, they may have a completion date for an old property, or they may know the exact date when their mortgage will be agreed. Therefore, people in these circumstances will be suitable for closed bridging finance as they can set a fixed date for the repayments of a bridging loan.

Closed Bridging Finance Example

Your property has sold and exchanged contracts but completion will not be taking place until a certain date in the future. At the same time your dream property has also just been put up for sale and has had lots of interest. You don’t believe that you will complete the sale of your current property in time to purchase your dream property. A closed bridging loan can release some of the equity in your current property before it is sold allowing you to purchase your dream property. The bridging loan can then be repaid when you receive the proceeds from the sale.

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