How to remortgage after a bridging loan
When considering remortgaging after having a bridging loan, it's important to understand that this process can be complex due to the unique financial circumstances involved. However, it can transition smoothly with the right guidance and approach.
To ensure a seamless transition, it's crucial to fully grasp the essential steps in the remortgaging process, diligently gather all required documents such as proof of income, credit history, property details, and other relevant paperwork, and engage closely with a trusted and knowledgeable mortgage broker.
Can You Remortgage To Pay Off a Bridging Loan?
Bridge loans are short-term, higher-interest loans used to address specific problems, such as delays in securing a mortgage for a property sale or when a current property deal falls through
Bridge loans provide quick access to funds and are more flexible than applying for a mortgage upfront. Many borrowers use a bridge loan and then apply for a mortgage to pay it off. You can choose to remortgage to pay off the bridge loan, but you need to consider your options and your lender carefully. Remortgaging after a bridge loan will affect what lenders are willing to offer you for a mortgage.
When can you remortgage after a bridging loan?
After you buy a property with a bridge loan, most lenders will require you to have owned the property for 6-12 months before they will consider you for a remortgage. This can be challenging if you plan to use a mortgage as your way to pay off the bridge loan.
However, if you have purchased a residential property. Lenders can be more flexible and might allow you to remortgage sooner than the general 6-12-month rule.
Remortgaging after a high-risk loan, like a bridge loan, can make it harder to find a lender for a new mortgage. Lenders will have specific criteria for eligibility.
If you’re looking to remortgage after bridging finance loan, seek the help of an experienced mortgage broker who can help you through the entire process and give you expert advice on your remortgage.
The benefits of Remortgage After Bridging
As a bridging loan is a short-term loan, it is important to find a way to refinance your property before the end of the 12-month term
The three most common options for refinancing are:
- Remortgaging
- Selling the property
- Selling a different property
Some of the benefits of choosing our remortgage for your house are -
Switching to a secured mortgage – Bridge loans are generally more expensive than residential mortgages not only in terms of the interest rates offered, but also in the setting up costs. You are not required to make monthly repayments on a bridging loan, as the interest rolls up each month or is added to the loan. With interest rates being high, it doesn’t take long for the interest to roll up resulting in you owing considerably more than you borrowed.
With a secured mortgage, payments are spread over a longer term, typically 25 years – 30 years, often with a fixed interest rate, resulting in lower monthly payments and a more stable financial situation. This change can relieve the financial strain associated with short-term bridge financing, where the loan is increasing in size and eating into the equity in your home.
A traditional residential mortgage provides a more sustainable and secure financial outlook.
Lower interest – Bridging finance rates of interest and extra fees are higher than a mortgage. These costs can really add up over its short repayment period. However, mortgage rates are lower as they have longer duration terms.
Consolidating debt – When you remortgage, you can simplify your finances by combining debts, such as credit cards and personal loans, into one monthly payment. This could potentially lower the overall interest and other fees. When consolidating your finances, it’s important to look at the figures closely as the way to reduce your monthly outgoings is normally to take the loan out over a longer term. By taking a loan out over a long term, say 20 years, it’s very likely that you will end up paying considerably more interest back. With a long term loan, it’s advisable to make additional capital repayments whenever you can. This results in paying less interest and repaying the loan more quickly.
Equity – Bridge loans are not just for buying property, they can also be used to pay for renovations. By using a bridge loan for property development, you might increase its value and, therefore, increase your ownership stake in the property. When you remortgage, you may be able to access this increased ownership stake and get more funds for future property improvements or other uses.
Key considerations when remortgaging after a bridging loan:
Your current financial situation - This involves a detailed evaluation of your existing mortgage, your specific financial goals, and the current value of your property. It is necessary to take into account all these factors to gain a clear understanding of the best path to take when considering remortgaging.
Choosing your broker - With a more unique financial and complicated circumstance, finding a broker is important. A specialist mortgage broker will be able to offer their unique expert advice, navigate the complexities of the remortgaging after a bridging loan, and negotiate on your behalf with potential lenders to secure the best deal for you.
Make sure that any broker you use is authorised and regulated by the Financial Conduct Authority (FCA).
Gather all the required documents - This typically includes detailed proof of your income, various identity documents, and comprehensive information about your property. A mortgage broker will help you through the preparation of these documents for a smooth and successful remortgage process.
Delve into the world of remortgage deals - It's important to thoroughly explore and compare the various offers available to you from different lenders. By conducting a meticulous comparison, you can identify the lender who fits your unique financial objectives and current situation.
Submitting your application - During this phase, the lender will review your credit history to assess your financial standing. This will also include a credit check. Depending on your property, they might also evaluate the property to determine its current market value as part of the thorough application process.
Completing the legal process - This requires signing the legal documents to finalise the remortgage officially. It's vital to take the time to carefully review and understand the mortgage terms and conditions before signing, ensuring that you are entirely comfortable with the agreement.
Additional tips for remortgaging:
Start Early: Begin the remortgaging process well before your bridging loan term ends to allow sufficient time for the application and approval process.
Consider a Mortgage Broker: A broker can help you navigate the complexities of remortgage and find the best deals.
Be Prepared for Potential Challenges: Remortgaging after a bridging loan may present unique challenges. Be prepared to address any potential obstacles with the assistance of your mortgage advisor.
To remortgage after a bridging loan and secure a long-term mortgage that meets your financial goals, follow these steps and work with a qualified professional.