Bridging loans are often used by landlords and property developers to fund projects whilst waiting for the sale of existing assets to be completed. Common examples for the use of a bridging loan include
Bridging lenders will typically charge monthly interest on your loan. The duration of the loan may be from a few weeks, to a few months.
Interest on a bridging loan is charged on a monthly basis with mostly three ways i.e. rolled up (deferred interest) or retained interest.
The way monthly interest works is that you pay the interest on a monthly basis. So your actual capital amount stays the same but interest will be paid each month. At the end of the term, you just pay off the balance you owe which could be done by re-mortgaging the asset.
Secondly rolled up or deferred interest normally gets paid at the end of the term. You just pay the full amount borrowed and total interest together. This way you do not have to pay any monthly payment. This is good for short term bridging where asset bought and then refurbished to let. You can then re-mortgage the asset and pay the loan off.
There is another way where you can also borrow interest upfront as part of your loan. This covers monthly interest payment and at the end of the term you just pay the whole loan back.
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