Understanding Open or Closed Bridging loans

Bridging finance is one of the best ways to cover any shortfalls at times when you are involved in an arbitrage or need urgent cash without wishing to go through ‘full status loans’ (ones involving credit checks, income assessments et al).  In summary, they make it much easier for Borrowers to arrange quick cash - that’s their bottom line. They are quick and relatively easy to get.
The main purpose of a bridge loan, as the name would suggest, is to bridge the gap between the cost price of an asset and the borrower’s budget such as in cases when they have just bought a home post selling the older one and waiting for the proceeds to come their way. Through bridging finance, they buy the new house and get some time by their side to collect the proceeds and pay off.

What differentiates bridging finance from mortgages is the higher risk it carries and the way it is underwritten, with only the borrower’s property as the collateral. They generally come in two formats: Open Bridging Loan and Closed Bridging Loan.

Differences between Open and Closed Bridging Loans
Open Bridging loans allow borrowers borrow money even when the sale of a specific property is not involved. It works out to be the ideal choice when one needs money to improve a property in order to achieve a better sale price, or even just for a quick business cash injection. Payment term is shorter, usually between 6-9 months, and the amount borrowed is to be paid back before the term expires. Loan amounts are relative to property values and this is usually determined by a property appraisal or by looking at what nearby properties have sold recently for. However, the ”open” nature of these loans is due to the fact that there isn’t necessarily a fixed repayment date – hence the name – but there will be a maximum term of the loan. As usual, of course, in case of non-payment, the property can be repossessed by the Lender.

Open loans take longer to process and require more details from the borrowers, therefore, if you wish to use this option, it is best that all the paperwork is in place.

Closed bridging loans are different from open bridge loan in the context of being more structured and limited in their scope. While they are cheaper, they are limited to property specific cases where the Borrower has just bought a new house and is waiting for the proceeds from another house sale to pay the purchase price, or has just bought a property in an auction or have bought a place and looking for mortgage. With closed bridging loans, one can pay for the new house and payoff the loan through the proceeds from the sale of another.  Closed bridging loans probably work out best in cases where the Borrower doesn’t have a good credit record. They are easier to process and take less time as well. In cases of non-payment, usually penalties are levied rather than repossession. Most of the times, the maximum payoff window is not more than 6 months within which the entire amount must be paid off.

In summary, there is no one “better” type of bridging loan but it depends on your individual circumstances.

Copyright © 2011

Understanding Open or Closed Bridging loans

Bridging finance is one of the best ways to cover any shortfalls at times when you are involved in an arbitrage or need urgent cash without wishing to go through ‘full status loans’ (ones involving credit checks, income assessments et al).  In summary, they make it much easier for Borrowers to arrange quick cash - that’s their bottom line. They are quick and relatively easy to get.

The main purpose of a bridge loan, as the name would suggest, is to bridge the gap between the cost price of an asset and the borrower’s budget such as in cases when they have just bought a home post selling the older one and waiting for the proceeds to come their way. Through bridging finance, they buy the new house and get some time by their side to collect the proceeds and pay off.
What differentiates bridging finance from mortgages is the higher risk it carries and the way it is underwritten, with only the borrower’s property as the collateral. They generally come in two formats: Open Bridging Loan and Closed Bridging Loan

Differences between Open and Closed Bridging Loans

Open Bridging loans allow borrowers borrow money even when the sale of a specific property is not involved. It works out to be the ideal choice when one needs money to improve a property in order to achieve a better sale price, or even just for a quick business cash injection. Payment term is shorter, usually between 6-9 months, and the amount borrowed is to be paid back before the term expires. Loan amounts are relative to property values and this is usually determined by a property appraisal or by looking at what nearby properties have sold recently for. However, the ”open” nature of these loans is due to the fact that there isn’t necessarily a fixed repayment date – hence the name – but there will be a maximum term of the loan. As usual, of course, in case of non-payment, the property can be repossessed by the Lender.

Open loans take longer to process and require more details from the borrowers, therefore, if you wish to use this option, it is best that all the paperwork is in place.

Closed bridging loans are different from open bridge loan in the context of being more structured and limited in their scope. While they are cheaper, they are limited to property specific cases where the Borrower has just bought a new house and is waiting for the proceeds from another house sale to pay the purchase price, or has just bought a property in an auction or have bought a place and looking for mortgage. With closed bridging loans, one can pay for the new house and payoff the loan through the proceeds from the sale of another.  Closed bridging loans probably work out best in cases where the Borrower doesn’t have a good credit record. They are easier to process and take less time as well. In cases of non-payment, usually penalties are levied rather than repossession. Most of the times, the maximum payoff window is not more than 6 months within which the entire amount must be paid off.

In summary, there is no one “better” type of bridging loan but it depends on your individual circumstances.

Copyright © 2011

Understanding More About Secured Loans Before You Borrow

The Secured Loan market in Britain has seen tremendous growth in recent years. Far from being a victim of the credit crunch and waning as so many other finance sources have it has in fact flourished due to the circumstances of the market. Is this growth sustainable? Can the market continue to offer a lucrative source of finance for borrowers, lenders and brokers alike? This will depend on many factors.

A secured loan is a second charge on a property. Currently you can have total borrowings on your property of about 85% (subject to circumstance, of course) so if your mortgage is less than this amount you can borrow extra up to this amount using this available equity, usually no more than £100,000 though.  Rates on the loans start from about 7.9% and depending on the Borrower’s circumstances can reach up to 30.9%. This may seem high against a backdrop of 0.5% base rates but when you consider that an unsecured loan can be as high as 149%, suddenly it seems like relatively good value!

So what has driven growth in this market? Quite simply, it is demand at the right levels. The demand has been largely driven by Borrowers who are on excellent Tracker mortgage rates – a hangover from the credit bubble – and do not wish to remortgage and lose this rate in order to increase leverage. For example, a borrower on 50bp over base Rates (yes, there are many such people!) is now only repaying at 1% p.a. but if they remortgaged to raise extra finance, this rate would easily triple or quadruple. In light of this a loan at under 9% makes a lot more sense when viewed in the context of a weighted average of the Borrowers borrowings.

When we say it us demand “at the right level” this is a reference to the rates that can be attracted and, possibly more importantly, the fees that can be earned by Brokers for providing these loans, thereby incentivising them to push them with their customers. Normal fees are about 10% of the total loan amount and though this does increase the overall APR and is far more than the nominal fee charged for to arrange an unsecured loan, in light of the aforementioned reasons it is often still worth it. Of course with such generous fees there is a strong incentive for Brokers and also Introducers who can earn up to 60% of this fee for simply making a referral! It’s not hard to see then why the market has grown in prominence and volume!

Will this last? As long as remortgage rates and LTVs remain prohibitive, along with other lending criteria, then the answer is probably Yes. In addition some price competition between Lenders and also between Brokers as emerged recently making this product even more attractive for Borrowers. Whatever happens, one thing is for sure: the Secured Loans market has emerged from the shadow of Mortgages and is now firmly on Borrowers’ financial radar.

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Everything You Need To Know About a Commercial Loan

If you are in the process of expanding an existing business or taking the first steps to becoming your own boss, there are several steps to take until your company is up and functioning properly. A great way to expand a business is to locate a business site in which you can set up and run as your company. In order to raise the finance to purchase such a premises you must find a lender who is willing to lend to you based on the value of the property you are buying. This is called a Commercial loan and is similar to your traditional home loan but with slight differences. Firstly the LTVs are lower than with home loans as business viability is riskier. Usually a maximum of 75% LTV is available though sometimes higher can be achieved.  Secondly the income of the business, rather than the individual, is analysed as a priority. And finally, even after all this, the individual may be asked to offer Personal Guarantees as security. It’s a complex field and therefore speaking with a commercial mortgage specialist is highly advisable.

How to get the best rate for your money?
Once you have made the final choice to expand your business and have located professional help, it is important you sit down with your banker and discuss your financial situation and what you plan to spend, in order to build a successful business. A business loan is very hard to come by especially if you have had past judgments against you that may lower your chances to obtain a loan. One option that has been successful for other business owners is going directly to the same bank in which approved you for their home mortgage loan. The great thing about a local bank that has established a relationship with you already is the trust factor that is present in every mortgage payment you have made in the past up to this point in order to increase your credit score. Many also have several incentives available to their customers to apply for a Commercial Mortgage loan including discounted rates lower deposits.

When to put your offer on the table?
Once you have found the perfect building for your business it is up to you to act quickly to secure it.  You will always be in a stronger position as a Buyer of you can show finance in place so it is worth discussing with you bank in advance of your search to see what funds are available to you It is likely they can pre-approve you based on certain scenarios and give you an idea of what it is you can afford. With finance in place you can then go about negotiating the best deal. Nothing sways a Seller’s price more than the thought of a clean transaction with cash up front – this will always be your most powerful negotiation tool. At last, when you have signed the contract and settled all disputes you can now sit back and enjoy the freedom that comes with knowing your business premises are secure.

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What you need to know about a Secured Loan and Unsecured loan

A secured loan allows an individual to use their personal property as security to obtain a loan. By placing a charge over personal property, the bank is reassured that they are not at high risk of losing any money if you happen to default on any payments. The charge however is a second charge and so must sit behind a pre-existing mortgage. Somewhat surprisingly then, it is the case that if you don’t already have a mortgage and your property is unencumbered, then you can’t get this kind of loan! It is also important to note that in the event of default, the bank is entitled to foreclose on your property which can then be sold to recover the debt. Since this type of loan requires you to place a charge on your property until the loan is paid, the interest rate attached to the loan is usually more beneficial and the term can be longer – up to 20 years. The alternative of taking a loan without security most likely leads to a more punitive rate - this is the primary advantage of the loan.  In addition, even those with poor credit histories can borrow if they have enough equity in their property; usually total borrowings can go up to 85% LTV.

How individuals can gain from a loan?
As with all loans there are some disadvantages, most notably in this case that your property is at risk if repayments are not made, however there are several positive factors too. Many people on this type of loan have had poor credit histories and by leveraging the free equity in their property they allow themselves an opportunity to borrow and, in making repayments, rebuild their credit record and their credit score. This is a great opportunity for a person to prove they are capable of paying off a loan they may not have had the opportunity to take in most cases.

2. What you need to know about an unsecured loan?
An unsecured loan involves borrowing money from a lender without having to supply any collateral (such as personal property) for security purposes. Usually the term is no more than 5 years. In the current financially straitened times, being approved for this type of loan usually means you have had no or little trouble maintaining a positive credit report that reflects your accountability to pay what is owed in a timely manner. However, don’t expect it to be cheap! Though base rates are at 0.5%, loan rates start at about 8% for even the most prime credits! If you have had a questionable credit history then rates quickly hit double or for some even eye-watering triple digit interest rates! Clearly it pays to maintain a good credit record!

How individuals can choose the best loan possible
Which is the best kind of loan for you? It depends on your circumstances and requirements. Are you happy to secure your home or would you rather not? Is the interest rate and repayment term important to you? Weigh up these factors and you can determine which is right for you.

Copyright © 2011

Choice Loans is in a privileged position of having access to ALL Secured Loans lenders in the market. If you need short term cash and either are a tenant or you don't wish to offer your house as security you could get an Unsecured Loan.

How to benefit from bridging loans

Bridging loans can be the right solution for individuals or companies if they need short term financing for investments, usually real estate investments. As the name clearly shows such loans are a temporary solution until you manage to obtain money from another source or to get a long-term loan. For example, if you just found your dream house, you absolutely want to buy it but it will take a while until you manage to sell your current home, you can use this type of loan. You will be able to purchase the new property and you’ll have enough time to sell your current home for the right price. However, you need to remember that such loans shouldn’t be a first choice for individuals or businesses. They come with relatively high interest rates and unless you are certain that you will be able to repay them after a short period of time, you may be better with other finance options.

Advantages and disadvantages of bridging finance
The biggest positive of this type of loan is that it allows you to take advantage of real estate investment opportunities. Bridging lenders can generally approve loans quickly especially if you have a low Loan-to-Value. If you are certain that you’ll be able to repay it fast then it’s a good solution. However, it’s important to opt for a deal with no early repayment charges so you can clear the loan immediately when you have access to better finance.
Bridging loans also come with disadvantages. Access to such immediate finance comes at a cost: interest rates are with a few points higher then for long-term loans, there are also arrangement, valuation, legal and possibly broker fees to be paid on top so make sure you know all the costs before signing in for such a loan. Before getting such a loan it’s wise to use a broker and shop around for the best terms.

Types of bridging finance
There are two main types of bridging loans: closed bridge and opened bridge. If you already exchanged on the sale of your old property, the chances for the sale to fall through are very low. Thus, the lenders will approve a closed bridge financing for you. If you’re in this situation, it’s important to discuss two aspects with the lender: first of all, find out if the lender can offer you a no early repayment deal. Secondly, ask about mortgage options. It’s easier for you to refinance your closed bridge loan with a long-term mortgage through the same lender – less paperwork.
If you didn’t put your existing property on the market or you simply weren’t able to sell it yet, but you want to go ahead and purchase a new house, then the lender will offer you an open bridge loan. Get one only if you are sure you will be able to sell the old property in a few months and repay the high interest rates loan otherwise it will quickly become very expensive.

Copyright © 2011

Choice Loans is a Loans, Mortgage & Commercial finance broker provide Bridging Loans, Secured loans and Payday loan lenders in the UK.

Things you need to know on debt management

If you are struggling each month to pay your bills and you seem to go deeper and deeper into debt, maybe it’s time to get some help. Debt management services are a good option, providing you with tailored solutions for your financial problems. Debt advisors can suggest a course of action to you that will get you out of debt, without negatively affecting your credit score.

Why getting debt management help
When you juggle with debts from multiple creditors, such as several credit cards, personal loans or payday loans, you are probably paying high interest rates on each of them. Also, in such a situation it’s easy to forget about the repayments for a certain credit card, for example, which leads to even higher interest rates and more debt – it’s a vicious cycle. If you ask for assistance from a debt advisor, the first step will be to take into account all the loans you might have. Then, the debt advisor will analyse the interest rates for each loan and will try to figure out the right solution for repaying all of your debts. Usually, this means consolidating the debt, by using a loan from a single lender, with a better interest rate, to consolidate all your debts. Once you do that, it will be a lot easier for you to remain financially disciplined, since you have only one monthly repayment. Consolidating debt also saves you money each month, because the debt advisor will help you find better interest rates. If consolidating the debt is not an option for you, the debt advisor will negotiate with your lenders to achieve better terms for you; this could mean stretching the length of the credit period, obtaining better interest rates and so on. Also, you will benefit from financial advice on how to organize your personal finances to avoid falling in the same debt trap again.

How to find reliable and affordable debt management services
There are lots of organisations providing such services, from non-profit organisations to private companies specialising in this field. With non-profit organisations, the advantage is that you don’t have to pay any fees. However, the quality, the efficiency and the timeliness of the services might not be what you need. This is why it’s better to purchase professional services from reputable financial consultancy companies. Make sure you perform a background check and read testimonials and reviews on a certain company before entrusting them with information about your financial situation. Ask details on the services they provide and make sure you will pay them fees only if they manage to obtain definite results. The debt management help market is not a very regulated market so you need to be very careful when purchasing services in this area.
Also, you need to keep in mind that your personal commitment to becoming financially responsible is the most important part of the equation. If you manage to consolidate your debt, but you still keep missing repayments, you will end up back where you started!

Copyright © 2011

Choice Loans is a Loans, Mortgage & Commercial finance broker provide Bridging Loans, Secured loans and Payday loan lenders in the UK.