How do you find the best bridge loans? The best way to start is by learning everything you can about this interesting mortgage loan option. In this expert interview, Certified Mortgage Planning Specialist Scott Yonehiro explains everything you need to know about the basic details surrounding the best bridge loans available.
What is a bridge loan?
A bridge loan is a short term loan not to exceed two years and is utilized temporarily to deal with pressing financial obligations until permanent financing can be secured. Bridge loans are generally accompanied by high interest rates (ranging from between 12% to 18%). A bridge loan is also generally secured by real estate or some other form of collateral such as business inventory and stocks.
What types of fees are involved with a bridge loan?
Depending on the loan amount of the required bridge loan, fees can run as high as 5 to 7 percentage points. Of course if the bridge loan needed is a very large amount - say $1,000,0000 plus - then the points charged would decrease to closer to 2 ½ to 3 ½ percentage points. Regardless of loan amount, bridge loans, by their very nature, don't come cheap.
What are some alternatives to a bridge loan?
Depending on the borrower's unique circumstances possible alternatives to obtaining bridge loans would include selling company stock, selling equity shares of a company, or selling real estate. Most alternatives will have some negative drawbacks, so borrowers need to weigh all considerations carefully as all alternatives may have strong implications on the borrower's overall financial goals.
What is the advantage of using a broker to find the best bridge loan available?
A seasoned and experienced broker will have several relationships with both large and small private investors who provide bridge loans. These relationships are the key to getting the best rate and cost since the broker who has built them will be able to shop for the loan for the borrower. A broker's experience in negotiating on behalf of their client lends itself to encouraging investors to be competitive. Shopping for a bridge loan without an experienced broker working as your advocate is risky; I wouldn't advise it.
What is the difference between an open and a closed bridge loan?
An open bridge loan may have a prepayment penalty affixed, which may sway the borrower from paying it off too early. However, a closed bridge loan will have not only a prepayment penalty, but a closed transaction cost as well. A prepayment penalty can vary from a cost of six months worth of intended interest payments to a total percentage of the loan amount, which may vary between 3% to 5%. A closed transaction fee is much more severe. In the case of a borrower breaking the term of closed bridge loan, the borrower must then pay the full amount of future intended payments the lender was entitled to receive for the agreed upon time frame of the loan.
What do people need to know before applying for a bridge loan?
Bridge loans are intended for short term stabilization during a gap of financing so borrowers need to remember to keep it that way. Bridge loans, whether open or closed, are not for the faint of heart. If you find an experienced broker they will be able to properly shop for you and find the best options and solutions for your unique situation. Above all else though, it's important to remember that these loans need to be viewed as temporary solutions until a permanent solution can be found.
LoveToKnow Mortgage would like to thank Scott Yonehiro for taking the time to share his expertise about bridge loans, and wishes him continued success.