Bridging loan is basically a short term loan which is most often used in two situations - to buy a property while selling the existing property, or to build a new property while residing in the existing property. In both cases, the loan amount will include existing loan balance as well as contract purchase price (or build price) and other purchase costs, and the lender will put a mortgage on both properties.
The loan amount in bridging structure is called Peak Debt. After the sale of existing property, loan amount will be reduced and remaining amount will be called End Debt. During the Peak Debt term (usually 6 months), repayments will be interest only, and interest can be capitalised (with some lenders). If the interest is capitalised, Peak Debt will be increasing during the bridging term. The important point is that End Debt must be serviceable.
Peak Debt calculation:
Existing loan balance plus Contract price plus Sale and purchase costs (e.g. Stamp duty, refinancing costs etc.) plus Interest (if capitalised) minus Own Funds (if available).
End Debt calculation
Peak Debt Balance minus Net Proceeds of Sale
Some lenders will require two applications, where the first will be reflecting the Bridging Loan itself (Peak Debt), while the second will only reflect the End Debt.
Setting up Bridging loan in Salestrekker is pretty straightforward. Here are the steps that need to be taken:
There has to be 2 securities - existing property (listed in assets) and new property
Securities will be cross-collateralized
First security is going to be refinanced, second will be purchased (or built)
Under existing security, 'To be sold' checkbox should be checked
Appropriate product must be selected
NOTE: Lenders have different preferences regarding the structuring of Bridging Loan. In Salestrekker's Lender document library, you can find Bridging Checklists, Bridging Calculators and other documents which may help in submitting this type of application. Still, good practice would be to consult preferred lender's BDM prior to submitting Bridging Loan application.