A growing number of investors are opting for second load bridging loans to meet their financing needs when purchasing investment property or adding additional capital to their business. Additionally, second charge bridge loans are continually used to refurbish and protect property value with existing mortgages.
That’s not all. According to experts, the demand for second-tier loans is expected to increase during the year. In an environment where interest rates have been low for some time, it makes financial sense for an investor to take out additional loan funds and release some of their equity held in the property. Taking a second charge on the property is better than refinancing the investor outside of the existing mortgage.
This is why taking out a second bridging loan is more suitable for investors with a mortgage on their property when they need additional financing in a short period of time. The different uses of a second charge bridge loan may include the purchase of a commercial / investment property, the expansion of an existing business, or the redevelopment of an old building or property, among others. .
Meaning of a second bridging loan
A second bridging charge comes after an existing mortgage or loan. A second legal charge is usually secured by the equity left in the property after the issuance of the first mortgage or loan.
In addition, a second legal charge can be secured by different properties such as residential, commercial and rental properties.
While secured loans are examples of long term financing plans, trade transition financing is generally a short-term loan, with maturities of 12 months.
However, the primary lender must agree to issue a second charge because the second charge takes second priority and takes precedence after the first charge mortgage. Also, the second mortgage is expensive compared to the first mortgage because the loan provider takes additional risk by accepting the loan repayments after the payment of the first mortgage.
When is it best to use second charge bridging loans?
It is often advantageous to take out a second charge loan when you have secured a low-interest mortgage or on interest-only loan terms. Remember that taking out a second bridging loan implies that you maintain the interest rate on your existing mortgage; there are no changes to the terms and conditions of the existing mortgage.
In addition, a second charge is beneficial when issued on flexible loan repayment terms, which saves the borrower a lot of interest.
2. When you are limited to a fixed rate with prepayment penalties
You will find a second charge a cheaper financing option if the lender charges you a penalty when you terminate or prematurely change your current fixed rate loan. In this case, taking a second charge loan means that the existing mortgage remains in place and no penalties are imposed on the borrower. However, always do a cost comparison when you find yourself in such a situation.
3. When You Cannot Get Additional Financing From Your Primary Lender
In recent years, mortgage lenders have offered more stringent lending terms to borrowers, including the use of “stress” tests and scenario analyzes to ensure that borrowers can repay their loans when the loan goes down. interest rates rise. On the other hand, the terms of second load bridging loans are not necessarily rigid, allowing lenders to customize a loan product for a specific borrower.
Because of their flexible repayment plans, second-charge bridging loans are suitable for investors with irregular income streams, such as independent entrepreneurs.
4. You are in urgent need of funds
The conventional lender, such as the bank, may need an extended period (sometimes months) to process a loan and fully deliver the funds to the borrower. On the other hand, a bridging loan provider can enter into a loan agreement within hours of a formal request. This way the funds are released more quickly (in some cases within a week) to help the borrower.
A second bridging loan will quickly provide you with the funds you need if you are looking for a rapid capital injection in your property or business.
How much can I borrow in a second bridging loan?
You can borrow up to 70% of the value of your title, with loans ranging from £ 100,000 to £ 5 million available for loan. The exact amount you can borrow is determined by the interest on the loan (cost of the loan) and the equity value of your property.
This article does not necessarily reflect the views of the editors or management of EconoTimes.