A bridging loan is useful if you will have financial resources within a very short time, but you need money right now. For example, you can already buy a new home with a bridging loan, pending the sale of your current home.
A bridging loan is useful when, for example, you are in the middle of selling your home, but you already need money for the purchase of a new home. Also in other times when you are in financial trouble, waiting for a payment to be received, a bridging loan can serve for smaller amounts.
The bridging loan is therefore simply a credit that is made available to you until a final financing is arranged. This can range from the time between the sale and purchase of a house or new projects at companies. A bridging loan is therefore used to bridge a difficult period , that much is clear. In this article we go over everything that a bridging loan has to offer.
Characteristics of a bridging loan.
Bridging loans mainly serve to bridge a short period and are not comparable to other types of loans. There will certainly be conditions and limitations attached to a bridging loan, which vary from bank to bank.
The banks mainly want certainty that they will get back the lent capital. After all, they give you a large sum of money that you can spend. A possibility to guarantee is that they take a mortgage registration on your current home, but it can also be different. Other banks will want the private deed of sale of the old house already signed.
Bridging loan: maximum loan amount.
The maximum amount that you can get will usually be a percentage of the amount you will receive from the sale of your property. In this way, the bank can build in an extra safety margin. So it is not so much the value that matters, but what you can or will receive effectively. Build a safety margin for yourself and assume that the bank will derive only 80% of the sales amount.
A bridging loan is best known in situations where a temporary shortfall of money must be taken care of, such as when buying a second home when the first home has not yet been sold. But know that it is also possible for smaller amounts. The minimum loan amount depends on bank to bank. At Dexia it can usually be € 7,500, while the minimum amount at BNP Paribas must be € 12,500. For smaller loans, please refer to our section on mini- credits.
Bridging loan: interest.
Just like a home loan, the interest in a bridging loan can be fixed or variable. The interest rate will be lower than a cash credit on your current account, but will probably be higher than the interest on a home loan.
In practice, the interest rate of a bridging loan is usually variable. The term is limited, but in this short period there can be a lot of change on the market and you do not always know exactly when you have sufficient funds to repay the bridging loan.
Belfius, for example, recommends a fixed interest rate. With a bridging loan, a mortgage guarantee is given as a guarantee and you will therefore be able to benefit from rates such as a mortgage loan.
Record bank offers two formulas:
- A classic bridging loan: where you can borrow up to 100% of the market value of your old home. Interest is refunded monthly.
- A light bridge loan: where you can borrow up to 80% of the market value of your old house, but where you do not pay interest during the term. The interest will be due, just like the capital, when your old home has been sold.
Bridging loan: duration.
A bridging loan is mainly intended to absorb temporary money problems. The term of a bridging loan will be between one year and three years. Some banks will propose a minimum term, other banks offer more flexibility. An example may be to enter into a contract that can be renewed every three months, with a maximum term of three years. It comes down to finding a bank that can exactly meet your needs.
You will not repay capital during the term. You will only have to pay an interest on the borrowed capital.
Bridging loan: completion.
After the credit you will have to repay the borrowed capital in one go. When that happens you have in principle already received the money to repay the credit.
A bridging loan early repayment can be avoided. First ask your bank what the additional costs are if you repay the loan early, because it may be that your bank charges extra costs or that you have to pay a reinvestment fee.
If you would not succeed in repaying the bridge loan after the expiry of the period, the bank will be able to convert the bridge loan into a mortgage loan with a longer term. It is therefore important to be certain that your time can come to the money (eg from the sale of a house, from the payment of a bonus, …).
In summary: overview features:
• Payment of interest during the term;
• Repayment of the capital at the end of the term;
• Limited term;
• Early repayment is not always cheaper. Advise you at your bank.
Caution is always necessary, especially with a bridging loan. The expected revenue from, for example, the sale of your property can always be lower. Banks also know this and have also been less eager to provide credit since the financial crisis. A mini-loan is of course a completely different story. So keep in mind that a bridging loan can certainly help you in certain cases, but that you consider this best as an emergency solution and first look for alternatives.
TIP: also consider a mortgage loan. This will involve notary fees, but the interest will be lower than with a bridging loan. So be sure to request a simulation from various banks for both a mortgage loan and a bridging loan. That way you can see which formula is most interesting for you.
Bridging loan: deductible from taxes?
The answer to the question of whether a bridging loan is tax-deductible in personal income tax can be answered in two short chapters:
House deduction: Although a bridging loan can be mortgage, it is not deductible as a ‘living bonus’ because one of the conditions is that the term must be at least 10 years. A bridge loan is therefore not.
Interest deduction: If it can be proven that the bridge loan serves to acquire or keep a property, the interest can be contributed (under the heading ‘other interest’). In that case, the loan does not even have to be mortgage, but you must of course be able to provide the proof.
Is a debt balance insurance required for a bridging loan?
There is much less risk of the borrower’s death, because the period of the credit is much smaller than with a mortgage loan, for example. A debt balance insurance will therefore not be necessary in normal cases to be able to take out a bridging loan. The bank will, however, incorporate other safeties to ensure that they will eventually receive their money back. We have already discussed this in this article.
Practical: when to take bridging loan?
There may be several reasons why you enter into a bridging loan. Practice tells us that certain situations are fairly common. An overview:
Bridging loan purchase.
The housing market has risen and so many homeowners are faced with a choice whether or not to absorb the added value of their home. This way you can build or buy your dream home with the savings of your current home with a little savings.
The sale of your property will not coincide with the purchase of your new home. The market can be fickle and sometimes you have to be patient before your house is actually sold. A solution is then the bridging loan whereby the lender will advance you the money.
It is important to remain realistic what you will receive when selling your home. You may want to get 300,000 euros for the sale of your home, but in reality you may have to be satisfied with 280,000 euros. This is a difference of 20,000 euros that you will have to pay on the maturity date of the bridging loan. For that reason, the financial institution will often also install an extra margin in the maximum that you can borrow.
Companies can also invest in real estate and will temporarily have to find a solution. Companies can also use a bridging loan. The interest of this will be deductible as long as it concerns a property that is used for the exercise of the professional activity.
Notary fees for bridging credit?
Sometimes there are notary fees for entering into a bridging loan . In principle, that is not the case because it is an agreement between you and the bank. In this case there are no notary fees, but only additional file costs.
However, notary fees can occur if a mandate is taken for the bridge loan on the old (not yet sold) house. In that case, notary fees will be involved.
Find the best bridging credits: simulations and quotations.
View the range of different banks, do simulations, view the conditions and request more and more information and / or offers. Through the internet you are certainly able to make a good comparison between the offer of the different banks. Just be sure that the differences in rates between different lenders will be noticeable.
Where can you contract a bridging loan?
Almost every bank will certainly have opportunities for a bridging loan. Just think of KBC, Dexia, ING, BNP Paribas Fortis, etc.