The bridge loan primarily targets second-time buyers , looking for a new property. This credit, declined in two principal formulas, finances the new acquisition (good B), before the sale of the old one (good A). A mechanism that significantly reduces the debt ratio and is interesting, if and only if, the sale is made as quickly as possible, in the time allowed without ever exceeding 2 years.
How does a bridge loan work?
Serving as a joint between two homes , the loan relay allows an owner to acquire a new property, without having sold the previous one. Called “relay-purchase” or “purchase-resale”, it actually results in the repurchase of the current credit with a bank and the addition of the necessary funds for the new acquisition.
For security, the bank does not take into account the totality of the value of property A: thus, the credit is based on 60 to 80% of its value , in order to cover a possible decrease in the selling price. Here, the key is to properly assess the home to optimize the duration of the credit relay.
What are its different forms?
Relay Relay Loan: The Most Common Formula
The associated bridge loan is accompanied by a classic amortising loan.
If the property A is less valued than the property B, the bridge loan can be associated with a second credit, to complete the financing of the latter. Built on the basis of a classic amortising loan, the monthly payments repay the interest on the bridge loan, as well as the interest and amortization of the capital of the second loan: all the costs are simply smoothed in order to obtain almost identical monthly payments.
The dry relay loan
If property A is valued at the same height (or even higher) than property B, the bridge loan does not need to be accompanied by a complementary real estate loan , since the owner only needs to an “advance” from the bank, to acquire the new housing. He will settle the capital of the grace with the money of the sale of his good A.
The total duty free relay loan: formula not to exceed its debt capacity
It is accompanied by a depreciable bridge loan with deferred amortization.
This assembly consists of lightening the monthly charges during the period when the property is not yet sold. To do this, the interest is not reimbursed monthly. The franchise period can extend up to 12 months.
The borrower will repay the borrowed capital and interest at one time at maturity.
This financing is expensive in the long run but it has the advantage of being more timely in terms of cash flow.
How are repayments of a bridge loan organized?
Whether it is a bridging loan, dry or associate, there are two options for repayment :
- Partially deferred , the monthly payments consist solely of the interests of the bridge credit (with insurance contributions). Capital being repaid on resale of property A.
- Total deferred repayment of the bridge loan is made in full on the resale of property A.
If the bridge loan is accompanied by a traditional loan, the latter can also be adjusted according to the personal situation of the borrower. For example, with a deferred amortization formula, the monthly expenses are reduced until the sale of property A.
After the deadline, the borrower is liable for the sums due . If they are not honored, the bank can take legal action against it and enter it in the Personal Credit Reimbursement Incident File (FICP).
To avoid this situation, it is better to act before the expiry of the bridging loan , ask for an extension from the lender.
The role of the credit broker in this transaction?
Beyond his knowledge of banking, he also has banking techniques and can establish with you a simulation that allows you to know what financial transaction meets your expectations and your situation.
You will know what type of bridge loan to consider over how long, the amount that the bank can lend you, rate that can be obtained, the cost of your credit for this operation.
Consider the purchase of a property B before the sale of its property A must prepare in the best conditions . This financing plan deserves special attention because it can consist of several loans (bridge loan, complementary loan with deferred and a conventional loan).
Our network of free brokers can enlighten you and establish for you your personalized financing plan.