There are a lot of factors to consider when choosing a Bridging Finance Loan.
Clients often focus only on the monthly interest rate and forget all those “hidden” fees and costs.
If you only ask one question it’s how much will it cost me in total?
The key points are:
- Interest Rate: Is it calculated daily or monthly?
- Do you know what interest rate applies for the whole term of the loan as some lenders start off with a low rate then increase it?
- What is the minimum period they will charge you? It’s usually one – three months but we’ve seen it as high as nine!
- If you are late in repaying the loan will the rate increase, is there be a monthly fee and will you be in court soon?
- Do you know the rate will you pay before you part with your money to pay the valuer? Some lenders are known to quote rates from.
- What is the arrangement fee?
- Does an exit fee apply? If yes are they based on the interest rate or loan amount or GDV of project?
- Is the term of the loan long enough to finish the project and exit the bridge?
- What value will the lender work off. There are at least three – Open market,180 day and 90 day.
- Does the lender accept title insurance/search indemnities to speed up the process.
- How good are the lender’s solicitors? Some are very slow.
A good bridging broker will know the answers to these questions. We also know the lenders who deliver and those we need to avoid.
Finally how will it get repaid. If you are keeping the property some bridging lenders will also do the long term loan. That’s worth knowing!