Like almost 40% of French buyers, do you want to buy real estate and finance this acquisition by selling your current home? To help you carry out this operation, banks and credit institutions have developed an appropriate solution: The “Loan Relay”.
To buy a new house or apartment, you may need to sell your existing property first in order to include the proceeds of that sale in your financing. However, it is not always easy to match the date of sale with that of purchase. On the one hand, it is necessary to proceed with your acquisition quickly, and on the other hand you need a certain delay to sell your housing without selling it off. You may then face the cash flow gap since you will have to buy your property before having the funds for the sale of the previous home. The different formulas of “bridging loans” make it possible to respond to this kind of situation.
How does a bridge loan work?
The device is simple: The lending establishment advances to you part of the amount immobilized in your current property, in the form of a bridging loan which will be settled upon the sale of your property, and of which you only reimburse the interest (capital is not amortized).
Depending on the institutions and bridging loan formulas, your advance will amount to between 50% and 80% of the value of your current property.
Three main bridging loan options are available
1. The bridge loan accompanied by a traditional amortizable loan You borrow more than the value of the property sold. The lender advances part of the value of the property for sale to you, and then he completes your financing need with an amortizable loan. You repay each month, from the start, the interest on the bridging loan plus the maturities of the conventional loan (interest + amortization of the loaned capital).
2. The “total franchise” bridge loan accompanied by an amortizable loan with “deferred amortization” Again, you borrow more than the value of the property for sale.. Associated with a traditional long-term mortgage, your bridging loan, granted over a period of 24 months, is also accompanied by a period of “total franchise”. This means that the interest on your bridging loan is not paid monthly but in one installment, at the same time as the principal borrowed.
3. The dry relay loan When the expected amount of the proceeds from the sale of your property is equal to or greater than the cost of your acquisition , you only need an “advance” without any other form of long-term loan. The financial conditions of a dry bridge loan are less favorable than those of bridge loans associated with a long-term credit because the profitability for the lender is less attractive, (even very low since the bank only earns a few months of interest on your loan ).
The advantages of the bridging loan and the precautions to be taken
The bridging loan has the particularity of being repayable without penalty as soon as your home is sold. For interest, the bank leaves you the choice. You can pay them month after month, or on the contrary all at once, at the same time as you repay the capital, after the sale of your home. It is very often this second formula (bridging loan with total excess) which is chosen by the borrowers.
Bridge loans are short-term loans. They are generally granted over an average period of one to two years. This is a feature that requires the seller to complete the sale of his property as soon as possible. What if you take longer to sell your previous home? The bridging loan may be extended by one year by your banking establishment but you will still have to do everything to find a buyer as soon as possible, otherwise you may have to repay your bridging loan before having the proceeds of the sale available.
Finally, note an important point. If you choose a bridging loan solution along with a conventional loan to supplement your financing, the bank will generally make significant efforts on the terms of your bridging loan. In this circumstance, she may indeed grant you a more remunerative mortgage for her.