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[I375]Interest Only Loans Mortgage

by Ajeet Khurana, Aje

Theoretically a bridge loan can be used for any purpose. But bridge loans are definitely more common in real estate funding. Here the loan is used the means for tiding over on the mortgage of a new home while the previous one is either currently in the process of being sold, or still not put up on the market for sale.

Prevention of foreclosure as well as making a payment for purchase are two of the most common uses of bridge loans.

Bridge loans are of great help to those who are in urgent need of funds to close on a new residence so that the current home can also close on the contract of sale. This requirement is usually the main reason why most people avail of the bridge loan. There are two types of this kind of loan: closed loans are for those whose contract for the sale of the property have been signed, and have pushed through.

Closed loans present a lender a lower risk, and as a result closed loans are more common. A set-up fee is required before processing, and the interest on the loan is paid in bulk when the funds from the sale of the property come in. Open loans are for those whose property have not been sold yet, or the contract for the sale is still under negotiation.

Open loans are difficult to come by, unless they are based on a long standing relationship with the lender.

Because of the risks involved on the part of the lender, the rates for the open loan are naturally higher than the closed loan. This loan can become complex, as the lender may even require the borrower to put up his new home as security for the loan, in case he does not have any other collateral to put up.

Many banks no longer want to take the risk of bridge financing. The terms of the loan do not complement most banks' lending criteria, and it may encounter difficulties in justifying the practice to investors and government assessors.

Though banks are frowning on them, there are specialist lenders who like to give bridge financing.

In applying for the approval of a bridge loan, the lender usually will ask for a copy of the mortgage offer on the new property, the terms and details of the agreement, and further supporting proof of the status of the current home on the market (whether or not it is really up for sale).

The borrower has to completely reveal her or his plans and only then is there a hope for bridge financing. Even if the property market goes in for a nosedive, the lender of an open loan will want to see the periodic payments come in for a year. After that, they may be willing to re-negotiate.

It is Very Simple

A Mortgage loan is a loan granted to the borrower so that he or she can buy the property, using the house that is purchased as collateral, or security towards the repayment of the borrowed sum. The typical borrowers are tenants who wish to purchase their first home. It can also be the case of people who want to buy property when they already have their primary residence and want to affect the purchase to business or rent.

Homeowner Loans

A homeowner loan, on the other hand, is a loan granted to someone who is already a homeowner and wishes to purchase an item other than real estate. This is a secured loan, using the equity in the home to back up the borrowed amount, obtaining similar interest rates and conditions to a home equity loan or a mortgage loan.

There is no definite interest rate for each type of loan and these may fluctuate, depending on the area of the country and the nature of the loan, between 5 and 10 percent. The repayment plans are generally shorter than mortgages, and the fees are similar. There will be an appraisal of the home to establish the value and discount any mortgages or other pending homeowner loans to establish the free equity.

Secured Loan

Being a secured loan, it has a very low risk for the lender, if any at all. The only loss would be the hassle of repossession, should this be necessary, since every other cost is covered by the product of the sales. This means that the amount of the loan is determined taking these aspects into account.

Growing Equity

Let us suppose that a loan has been granted with a payback period of three years. After one year, there has been an important increase in the price, due to market circumstances. This means that you have repaid one third of the loan, releasing the corresponding equity, and also the total value of the property has increased in the year elapsed, adding even more equity. Even if you used up all the equity at the time you took the loan, after a year or two you will be able to use the same property to request a loan using the new equity.

Some Benefits

Homeowner loans can give the borrower some additional benefits, such as payment vacation or prepayment, as well as the possibility of raising an important amount of cash in spite of having bad credit.

As examples of what one can do with this kind of loan, we can mention buying a brand new car, paying for an important vacation or redecorating the house. In other words, we do not need to inform the lender what use we will give to the loan, since it does not affect the outcome at all.

Article Source : Pg. 36

About Author

Both Ajeet Khurana & Amanda Hash are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.

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