A bridge loan is usually made by a bank, and the duration of the loan is usually for a fixed period of time. Hard money loans are usually more expensive in terms of interest rates, but the costs tend to be lower. If the loan period is short, a hard money loan is often more cost effective than a bridge loan. Home Bridge Loan Bridge loans are gaining in popularity among home buyers. When a home buyer is buying another home before selling an existing home, two common ways to finance the down payment for the new home is through either a bridge loan or home equity line of credit.
The market-focused expertise of the financing professionals at Remington extends across the capital stack from equity to senior debt, to each type of financing in between. When fast and reliable short-term financing is required, one of the valuable options for commercial real estate owners and developers to consider is the bridge loan.
Real estate owners often use a bridge loan to purchase a second property before the sale of the first property closes. Then the proceeds from the sale are used to pay off the bridge loan. This illustrates the important “exit strategy” borrowers must have before an investor makes a bridge loan. In this example, the investor would need to see a signed sales agreement spelling out where, when, and how the bridge loan will be repaid.
Bridge financing almost always needs to be arranged and closed quickly. Bridge loans tend to be for 6 to 12 months with a possible 12-month extension. They are usually structured as simple interest only loans with no pre-payment penalty and all principal due in full at maturity. Risk to the investor is minimal since the loans are underwritten based on existing equity in the property and the exit strategy is defined.