Advantages and Disadvantages of Bridge Loans

Advantages of Bridge Loans

Bridge loan financing comes with many advantages, some of which include:

• Control when you purchase the property: With a bridge loan, you can acquire your desired property at any time since you are not bound by a lack of cash. For example, suppose you wish to purchase a property worth $100,000 and you have applied for long-term financing. You may know that the property is in great demand and the risk of someone else buying that property is high. So, what do you do in such a situation? A feasible option is to obtain bridge loan financing. You can then pay off the bridge loan once your long-term loan is approved.
• Get Funds Before Property Sale: If you are trying to sell your property, but you are in urgent need of cash, a bridge loan is a good option in this situation. Typically, it will take several months to sell your existing property. This can be quite frustrating if you need to free up cash in the short-term. In such situations, you can take a bridge loan so that you can meet your financial needs prior to the sale. Ultimately, once your previous property does sell, you can use the proceeds to pay off the bridge loan.
• Temporary Loan: A bridge loan is a temporary loan, typically spanning less than a year. Generally, your existing sellable asset acts as collateral for you to secure your loan, and it is paid off as soon as the asset is sold.
• No Monthly Repayment: When you take a bridge loan, some lenders may not require the loan to be repaid in monthly installments, but will only ask for repayment once the asset has been sold. This can be extremely beneficial if you do not wish to bear the financial burden of making monthly payments.

Disadvantages of Bridge Loans

Just as there are advantages to budge loans, there may be some disadvantages, depending on the borrower's particular situation. You should consider them when deciding whether to use a bridge loan or not. Some disadvantages include:

• Higher Interest Rates: You may have to pay a higher interest rate for bridge loans. Since these loans are provided in anticipation of future cash inflow, there is higher risk. As such, the interest charged for bridge loans tend to be on the higher side.
• The reduced sale price of existing property: If your existing piece of real estate doesn’t sell as quickly or at the price you expected, you may find yourself in the position of having to slash the price in order to satisfy your obligation to pay off the bridge loan. In a sense, you are hedging your bets that your collateral will sell at the rate you had initially anticipated.

One important tip: If you are looking for a lender offering bridge loan financing in Maryland, then ensure that the lender has been in the business for a long time and has positive reviews and testimonials from previous and existing customers.