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How does a Bridging Loan work? All about how do bridging loans work?

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How Does A Bridging Loan Work? the majority of bridging loans have an end date or exit date, this is the date the funds you borrow have to be paid back together with interest and is agreed at the point you take out the Bridging loan, the way a bridging loan works is that they offer to advance funds to you for the purchase of a property or to allow you to get access to cash that is tied up in a property that you already own, the loan is offered to you on the basis that the lender will lodge a charge against the property or land that you are offering to the lender for security, when the funds are advanced to you a charge is placed on the property, this can be either a first charge, meaning the lender is first in line for their loan when the property is sold or their loan is paid back, a second charge means the lender is second in line for their payout.


You should think of  Bridging Finance in the same way you would as any other loan when security is offered in exchange for the loan, so in effect, a bridging loan is very much like taking out a short-term mortgage it's just that the term is not 20 years but more like 6-12 months, once the loan or mortgage is paid back to the lender the charge on the property is removed and the property becomes mortgage-free the charge a bridging loan puts against the property is no different from what a mortgage lender would lodge, it basically notes their interest in the property when any sales proceeds come in from the sale of the property.


The length of a bridging loan term is usually between 12-18 months but it can be as little as 48-hours and as much as 36 months. The length of the loan is agreed before you are issued with the terms, we would generally recommend that even if you think you will only need the loan for a few months that you take the loan for a minimum of 12 months, the period that you agree to the loan for makes no difference to the amount you will have to pay back as interest is only ever calculated and charged for the time the loan is actually outstanding, furthermore arrangement fees are exactly the same amount if the loan term is 1 month or 1 year.


In the event, you are in the fortunate position of being able to pay the loan back early this is not a problem as borrowers are entitled to pay the loans back at any time before the due date without a penalty - unlike some loans from a bank or credit agency, where there can be penalties imposed for early repayment. This is one of the advantages bridging loans have over standard bank loans.


Interest is worked out on the date of final payment rather than monthly and is most usually worked out on the basis of the total number of dates the loan was owed to the lender - which is another major advantage for borrowers who wish to take a bridging loan or this type of short-term finance.