A mortgage bridge loan is a way of taking out a loan for a short period of time. The money can be used to cover the costs of the property or even the development of the property while waiting for approval on a more substantial and long term loan. Using this kind of loan is a good way of ensuring that a business property has the funding that it needs to start becoming financially viable. These types of loans are not difficult to find, but it may be wise to examine all of the details before entering into a loan that has such a short term. No business wants to find itself in a situation of having a loan that does not have enough of a bridge. Ensure that the loan will cover financing until a longer term loan can be financed.A Mortgage Bridge Loan vs. Conventional Commercial Loans· Length of Loan: This loan is over an extremely short period of time when compared to the usual twenty or thirty years on a conventional commercial mortgage. The usual term is between 30 and 90 days, although you may be able to negotiate a longer period of time of up to a year, if you deem it wise for your business finances.· Interest Rates: The interest rates on a short term loan are usually much higher than the interest that is levied on a long term commercial mortgage loan. It can be up to double the amount of interest, but is usually somewhere between 10 and 15%. It is for that reason that many lending institutions are willing to approve mortgage bridge loans. The rate of return on investment for a financier is much higher, and contrary to popular opinion, the loans are relatively risk free.· Approval of Loans: It takes a much shorter period of time to be approved than a conventional loan. This is because the evaluation process is somewhat truncated. Conventional commercial loans are usually calculated on the value of the property, plus the value of the area in which the property is located, as well as the value of the improvements on the property. Conventional loans look at the future return on the investment, while a mortgage bridging loan is usually judged on the value of the property alone.· Percentage of Loan: A mortgage bridge loan may not offer the same amount of financing that a conventional loans odes, simply because it is based on the actual value of the property without any improvements. It is a way of protecting the lender against a defaulted loan, so the value of the loan is often not even close to the entire value of the property.· Credit Scoring: One of the biggest advantages with this kind of loan is the relatively minimal credit checks that are done on the applicant. Conventional loans often seek to get a personal guarantee for the loan while mortgage bridge loans are happy to accept the actual property as they only security.There is a certain amount of risk involved in taking out a mortgage bridge loan, but it is there for a reason and can be a stop gap and a way of obtaining finance in the interim.
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