People tend to accept that bridging finance interest rates will be high, but it’s important to realise that not all bridging loans are the same.
In New Zealand there are a number of banks and finance companies that can offer bridging finance, but you need to know where to go to get the best options to suit a given situation.
Bridging finance is used to “bridge” a gap, meaning it is generally just required for a short period of time.
Open Or Closed Bridging Loans
There are two common types of bridging loans;
- The Open Bridge
- The Closed Bridge
An open bridge is when you require finance with an unconfirmed exit. Typically this will be when you need funds to finance the purchase of a new property before you have a confirmed sale on the existing property which is to be sold.
These are the higher risk loans as there is not yet a sale in place; hence no clear exit.
Banks will generally not finance open bridge situations, but finance companies will.
A closed bridge is when there is already a sale, but timing does not match.
You may have purchased and need to settle on that before your sale settles. Often these are very short-term loans and banks may be willing to fund these.
Either way, as non bank brokers we deal with a lot of these and know which banks or non bank lenders have an appetite for a given situation.
There are a number of bridging loan options that many brokers don’t even know about or consider.
How Much Do Bridging Loans Cost?
You don’t need to accept that bridging finance interest rates will be high.
But the total cost for bridging finance is both the interest rate and the fees charged, and given the short-term nature of these loans the lenders tend to focus on the fees for their profit.
Interest Rates – these vary between lenders and have typically been in the region of 8.50% – 10.50% but it’s not uncommon to see higher rates charged and we will often get lower rates too. The interest rates are determined by the lenders cost of funds and the deemed risk of the deal.
The Fees – there are a few fees to consider with these types of loans and they vary a lot. The lenders will generally charge an application fee, often they also charge a legal fee and then there can be an exit fee. The mortgage adviser is typically paid on settlement by the lender, but their fee also needs to be included. It’s important that you consider all the fees as these can be quite expensive.
As specialist non bank brokers we will always look at what is required and consider the interest rates and fees.
We have access to the main lenders that typically do bridging finance and a few that are not as well known too.
We know how to get better options for you too.
