The bridging loan from building savings is one of the most popular ways to cover the cost of real estate investments. What is this type of loan and how does it work?
The bridging loan or inter-loan is concluded before the end of the building savings, if the funds are needed sooner. Intermediate loans can be applied for in any traditional building society, but it is necessary to meet certain conditions to obtain the loan. What do these include and what are the advantages and disadvantages of a bridging loan?
What is a bridging loan?
Thanks to the bridging loan, it is possible to obtain a building savings loan before the building savings reach the target amount. Therefore, if the client does not meet all the conditions for providing a regular building savings loan, but would like to finance his / her housing needs, he / she can apply for a bridging loan or intermediate loan.
However, certain conditions must also be met to obtain a bridging loan. Usually, it is necessary to deposit a certain percentage of the target amount into the building savings account, to prove sufficient income and to secure the loan. The client is then assigned a loan with a specific interest rate.
In addition to the classic bridging loan, there are also its special variants that can be combined:
- Bridging loan with increased interest rates – a type of bridging loan that is linked to a building savings contract with increased interest rates. A proper building savings loan is then provided with a discount on this higher interest rate.
- Repaid bridging loan – unlike the classic bridging loan, from which the client pays only interest, this type of loan is gradually repaid.
- Bridging loan with constant payments – monthly payments of the client during the bridging loan period are the same as payments in the building savings loan phase.
When deciding between the options, it is advisable to consult an expert who recommends a bridging loan that meets current and future needs.
How does a bridging loan work?
What is a bridging loan is therefore clear, but now how it works. The bridging loan is related to building savings. Building savings is one of the most popular means of saving money, as it is linked to the annual contribution from the state. However, the saved funds cannot be used until the agreed period of at least 6 years has expired. Thanks to a building savings loan, it is often not necessary to take a mortgage and pledge a property.
As already mentioned, the bridging loan is intended for those who want a building savings loan but have not yet reached the target amount. If they meet the savings bank conditions, the bridging loan will be granted to them and they will be able to finance their housing needs sooner. Until the target amount of the building savings is reached, only the interest is paid. At the end of the building savings, the saved amount is used for a one-off payment, after which the bridging loan practically becomes a classic building savings loan.
What institutions are building savings bridges?
The bridging loan can be applied for in all major building societies, whose offer differs mainly in terms of interest rate, provision and maintenance fees, the possibility of extraordinary repayment and the maximum amount of the loan.
Advantages and disadvantages of bridging loan
Whether the bridging loan is generally advantageous or disadvantageous cannot be determined precisely. It depends on a number of factors, such as the interest rate, fees or the Bank’s terms and conditions.
The indisputable advantage of the bridging loan is the availability of funds before the end of the building savings. It takes 6 years, however money for real estate or housing reconstruction is often needed much earlier. It is also advantageous that interest on the bridging loan can be deducted from the tax base.
The disadvantage, on the other hand, is that in the bridging loan phase it is also necessary to save on building savings. The funds raised through the building savings bridging loan can also be used exclusively to finance housing needs.
Early repayment of bridging loan
Disadvantages also include difficulties in early repayment of the bridging loan. Building societies prevent early repayments and often do not even allow them. The credit agreement states, with some exceptions, that early repayment of the bridging loan is not possible, or it is associated with a fee that compensates the Bank for the loss of interest income.
Early repayment of the bridging loan is therefore not very worthwhile. However, many savings banks offer the possibility to make an extra deposit on the building savings account, thus reducing the waiting time for the allocation of building savings loan.
Refinancing of the bridging loan from building savings is also associated with certain problems. Although refinancing can save on the interest rate, it will not be possible to pay the exit fees in the bridging loan phase. The refinancing of the loan will therefore pay off only after it has ended.
Bridging Loan – Calculators, Graders
Calculators and bridging loan comparators will help you choose the most advantageous bridging loan – the calculators are available on various websites online or directly on the bank’s website. Thanks to the bridging loan calculator, you can find out the amount of the contract and loan management fee, the interest rate, the possibility of early repayment and other necessary information within a few minutes.