Do your clients ever ask for short term finance? If so, there is a fair chance that bridging will immediately spring to mind. However there can be massive savings in the costs depending on the approach taken.
Many bridging loans don’t complete – often because the benefits are not great enough to outweigh the costs – it just doesn’t make financial sense. But a term loan with no ERC’s could deliver a better result at far lower costs which makes the whole project viable.
Here’s a recent example – saved £10000 over 12 months:
When considering a £150,000 second charge bridge the borrower saved £10,000 by taking a term loan instead and it didn’t put them under pressure to refinance after a year. In this case the money was needed to complete and sell a development but the loan was secured on the borrowers main residence. Consequently rather than being forced to refinance, the term loan gave the borrower the required cash flow to roll straight over in to the next project without paying another set of fees and costs.
Sure bridging finance can often happen faster as there is no burden of proving affordability – and there may be no monthly payments to service. But where affordability is not an issue, the interest costs can be more than halved, the need to find an exit is removed and the costs of refinancing disappear. Otherwise on a regulated term loan, the process is broadly the same but without any involvement by the borrowers solicitors (which can so often de-rail matters).
On your next bridging enquiry let me also explore the second charges term options for you. Remember second charges can be used for business purpose, tax or for heavy refurbishments – a low cost second charge facility with the option to settle or overpay without penalty could make good sense for many borrowers.
2 out of 3 borrowers get a lower rate than our representative example of a regulated secured loan below:
Mortgages and Remortgages
£80,000 over 240 months at an APRC OF 4.3% and a discounted variable annual interest rate for two years of 2.12% at £408.99 per month followed by 36 payments of £475.59 and 180 payments of £509.44. The total charge for credit is £39,873 which includes a £995 broker / processing fee and £125 application fee. Total repayable £119,873.
Secured / Second Charge Loans
£63,000 over 228 months at an APRC OF 6.1% and an annual interest rate of 5.39% (Fixed for five years – variable thereafter) would be £463.09 per month, total charge for credit is £42,584.52 which includes a £2,690 broker / processing fee. Total repayable £105,584.52.
£4,000 over 36 months at an APR OF 49.9% (fixed) and an annual interest rate of 49.9% would be £216.21, total charge for credit is £3,783.56. Total repayable £7,783.56.
THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME
REPAYING YOUR DEBTS OVER A LONGER PERIOD CAN REDUCE YOUR PAYMENTS BUT COULD INCREASE THE TOTAL INTEREST YOU PAY. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
If you have been introduced to Promise Money by a third party / affiliate, Promise may pay them a share of any fees or commission it earns. Written terms available on request. Loans are subject to affordability status and available to UK residents aged 18 or over. Promise Money is a trading style of Promise Solutions Ltd. Promise Solutions is a broker offering products which represent the whole of the specialist second mortgage market and is authorised and regulated by the Financial Conduct Authority – Number 681423.
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