Topic Breakdown - Learn about Bridge Loans
Introduction
In today’s article, we will be learning about bridge loans; a concept that many of you have probably never heard of. This is why it is important to understand this type of loan. A bridge loan is a short-term loan designed to provide financial aid for people during a transitionary period of time. One can use a bridge loan when moving to a new home. People moving or relocating for work can use bridge loans to help with the cost of buying a new home. Bridge loans are secured by one’s home as collateral, which is an item of value a lender can take away from an owner if the loan is not repaid, and is expected to be repaid within the range of six months to three years.
Purpose of a Credit Report
So how exactly do bridge loans work? Bridge loans vary in terms and conditions. Some can pay off the first mortgage of an old home, while others may carry on previous debt to the new debt. Bridge loans may also vary with different forms of interest payments. Some loans may require monthly payments, ahead-of-time payments, or lump-sum payments (a single payment instead of a number of smaller payments). You should also know that bridge loans usually run for six months, secured by the borrower’s old home. Lenders will also rarely extend the loan unless the borrower finances the new home’s mortgage with the same establishment. Bridge loans can also be risky, only very few have protections for the loan holder if the sale of the old home falls out; a bad case is when a lender forecloses (seizes a mortgaged property) an old property after the bridge loan expires. It is recommended to carefully consider if you need one. You can find a bridge loan through most lenders, but the best bet is to secure one through your mortgage provider.
Improving Your Credit Score
So what is an alternative to a bridge loan? Home equity loans are a top alternative to bridge loans. Just like bridge loans, they are secured by your home as collateral. However, that is the only similarity. Home equity loans are long-term loans, which can be repaid in a range of between five to twenty years. They borrow against the available equity in your home. In addition, the interest rates on home equity loans are more beneficial than bridge loans. It is also important to acknowledge that there can be risks to home equity loans as well. If your old home never sells, you will be paying three loans: your original mortgage, your new one, and the home equity loan. Ideally, it is recommended to wait until your old home gets sold.
Financial Guidance
“The goal isn’t more money. The goal is living life on your terms.” –Chris Brogan
Many people confuse the rationale behind financial stability. Most people believe the objective is to have more money; however, the truth is that the final goal is to live the life you want to, which is more likely when you have more money.
Money Fact
So what happens when money reaches the end of its life and is worn out? It is recycled and made into new paper bills.