Is It Possible to Repay a Bridging Loan Early?
One of the biggest advantages of a bridging loan is the general flexibility of the attached terms. At least, with most bridging loan examples, there’s a decent amount of leeway when it comes to repayment.
As a result, it is typically possible to repay a bridging loan early, without facing heavy penalties or additional exit fees. This provides the borrower with the opportunity to save a significant amount of money on the interest payments that would have otherwise applied.
However, it’s important to note that many bridging specialists impose their own unique terms and conditions regarding the early repayment. Some of which may not be evident when considering the options available with an online bridging loan repayment calculator. Where early repayment fees apply, they are typically calculated in accordance with how much interest is outstanding on the balance of the loan.
Prior to submitting your application, ensure you understand your chosen lender’s policy with regard to early repayment.
Early Repayment of a Closed Bridging Loan
Closed bridging loans are issued upon the applicant specifying an exact repayment date, when the loan will be repaid in full along with all applicable borrowing costs. This is dependent on the applicant disclosing their ‘exit strategy’ to the lender – i.e. how they intend to raise the funds to repay the loan at a specified date. For example, following the sale of their current property.
With a viable exit strategy outlined, closed bridging loans can be more cost-effective and easier to qualify for than open bridging loans. If the borrower wishes to repay the loan earlier than agreed, monthly interest payments and general costs up until the initial agreed repayment date may be payable. However, the lender may also impose no such levies or additional charges whatsoever.
Early Repayment of an Open Bridging Loan
By contrast, open bridging loans are issued without the lender having disclosed a viable exit strategy. Rather than agreeing on a specific repayment date for the loan, repayment is expected within a certain period of time – 6 months, 12 months, 18 months etc.
Open bridging loans can be more difficult to qualify for than closed loans, and may also attach higher overall borrowing costs. However, it’s usually possible to repay an open bridging loan at an earlier date, without facing additional fees or levies. Nevertheless, this again will be determined exclusively by the policies of the lender and the terms set out when the loan is issued.
Why Repay a Bridging Loan Early?
By its very nature, a bridging loan is designed to be repaid at the earliest possible juncture. In the vast majority of instances, bridging loans are repaid within around 6 months, though can extend to 18 months or more if necessary. As bridging loans are issued to cover temporary financial gaps, it simply makes sense to repay the funds borrowed as quickly as possible.
In a typical working example, a homeowner may apply for a bridging loan to purchase the property of their dreams, while waiting to sell their own property. They’re unable to provide an exact repayment date, but are confident the property will sell within six months. They take out a bridging loan to pay for their new home, after which their previous home sells after just two weeks.
Rather than waiting until the end of the six-month period to repay the loan, they pay off the balance in full as soon as the sale closes. In doing so, they also save money on the interest that would have been applicable, had the loan run its course.
Compare the Market
These are the kinds of terms and conditions that must be scrutinised heavily, before submitting a bridging loan application. In some instances, seemingly low rates of interest are augmented by elevated borrowing costs elsewhere. It’s therefore important to consider the ‘true’ cost of the loan you’re interested in, before deciding which way to go.
Consult with an independent broker and compare as many offers as possible to find the best deal on the market.