How Much Does A Bridging Loan Cost?

Are you thinking of purchasing a new home but waiting for funds to be available by the sale of your current home? A bridging loan can be a perfect source of financing in this case. It is a short-term borrowing solution that is designed to provide instant funding. It is named bridging finance because it bridges the gap between a debt and a long-term credit becoming available. The essential thing in getting this type of loan is having a proper exit strategy and a valuable property that you can use as collateral. It is straightforward and quick to get a bridging loan but keep in mind that it is an expensive way of borrowing.

Many bridging loan providers are available in the UK, and the cost of a loan may vary from provider to provider. In addition to high interest rates, a number of fees add to the overall cost of bridging loans. It includes arrangement fees, valuation fees, solicitors fees, and exit fees.

Arrangement Fees 

The cost of bridging loans generally includes an arrangement fee that your broker or lender charges from you. A standard arrangement fee is 2% of your loan amount. However, some lenders reduced it to 1%, and others excluded it completely. In addition, some bridging loan companies charge administration fees when you take out a loan. Always keep in mind to never take loans through brokers that charge high upfront fees that are not refundable. Because reputable brokers only charge upfront fees if they secure a deal and return otherwise. 

Valuation Fees 

For setting up a bridging loan, valuation of the property (that borrower is using as security) is carried out by the lender. The amount may vary with the value of an asset, location of the property, and type of valuation needed. For example, sometimes, a desktop valuation is carried out in which there is no need to visit the property. This type of valuation is carried out online through the internet and adds less to your loan cost. However, an onsite valuation adds more to your bridging finance cost.

Remember when you use more than one property as security against a loan, and you have to pay more valuation fees.

Solicitor Fees  

The solicitor fees fall under the legal fees category that will add up to your loan cost. All the bridging loan providers need a solicitor for due diligence and expect borrowers to pay the bill. It is a legal fee that you have to pay in addition to your own legal cost, and it can vary across the board. 

Exit Fees

One other factor that can affect the cost of bridging loans is exit fees. Some providers charge a redemption fee when you remove their charge from a security property. It usually costs 1% of the loan amount, and you have to pay it when the loan is redeemed. 

Now that you know, there are things other than interest rates that are added to your bridging loan cost. Thus, you must look at all these factors when calculating your loan cost. Moreover, you must carry out research on bridging loan companies to select the best one and get competitive rates.