The core feature of a bridging loan is its temporary nature, usually lasting from a few months up to a year, depending on whether you’re selling an existing property or waiting for the completion of a new build. The loan covers the purchase of the new property and related costs, consolidating these expenses into what is known as the Peak Debt.
Interest on bridging loans is typically calculated on an interest-only basis during the bridge period, with the option to capitalise the interest. This means that the interest accrued is added to the overall loan balance, allowing borrowers to postpone regular repayments until their existing property is sold.
Once the sale of the original property is finalised, the proceeds are applied to reduce the Peak Debt to the End Debt, which then transitions into a standard mortgage. This transition allows borrowers to move forward with a more traditional financing structure for their new home.
Bridging loans serve as a strategic financial tool for those in transition between homes, providing the necessary liquidity to navigate timing mismatches between property transactions. However, it’s essential for borrowers to consider the cost implications, including interest rates and fees, and to plan carefully to ensure that this short-term solution aligns with their long-term financial goals.