 Sam
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Joined: 21 May 2005
Posts: 286
Location: CALIFORNIA
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 Posted: Thu Apr 01, 2004 3:44 am Post subject: Bridge Loan |
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Bridge Loan (Gap Loan) is a short term loan (up to 1 year) offered by bank that bridges the gap between the purchase of a new home and the sale of the borrower's current home. It is also called "Swing Loan" or "Bridge Finance".
Features:- It is a loan that is secured by a borrower's current residence, to obtain the funds needed to close a new home before the current home is sold.
- The loan amount is used to pay off the existing mortgage along with closing cost and six months prepaid interest as a down payment.
- The loan amount is to be paid off, when you sell your current home. If your current home is sold within first six month of the bridge loan period, then the balance interest amount of your loan will be deducted.
- If the old house is not sold within first six month of the loan, the borrower will start making interest-only payment on the loan.
For Example, Nick bought a house for $200,000. He wants to sell it and buy another house. The purchase price of the new home is $2, 50,000. So he takes a loan of $2, 70,000, from the bank, keeping his present home as the security. He pays $10,000 as the closing cost and the interest to be paid in 1 year is $20,000. Out of this $20,000, he has to pay a prepaid interest of $10,000 as the down payment. Now if he can sell the former house within 6 months of buying the new home, he will save the rest of the interest which is $10,000. But if he fails to do so, then he is required to pay that amount. |
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