Home Purchase Bridge Loan:
There are situations in life where you’re looking at selling off an existing house/property with a motive to replace it with a new property due to many reasons. For some of us, it makes sense to buy/occupy the new property before selling off the existing unit but find it challenging to source funds in the interim to acquire it. In such situations, a home loan may not make sense since the intention is to fund the new property from the sale proceeds received from the old one.
In such a situation, a Bridge Loan comes handy. It is a short term loan granted to help the borrower fulfill the financial requirements such as buying a new home.
Bridge Loan in Detail:
The basis for providing this short term loan is the ownership of the current property. The borrower can take out a loan on the basis of equity of the current home to fund a new property. As the name suggests, it is a aimed at bridging the gap between the time of buying the new property and sale of the existing unit. It is typically availed by borrowers who’re looking to upgrade to a better facility. Typically, the term provided by the lender under this scheme is anywhere between 6-12 months from the time of ailment.
This loan is available for both individuals and corporates for various requirements other than real estate.
When to avail?
The most common reason why people opt for this scheme is due to time restrictions. Let's say, you’re interested in an early bird offer from a reputed builder who is offering you a non-premium price for an apartment in a prime location. This is probably the property you’ve been looking for and don’t want to miss the chance of paying a lesser price for it during the offer period. To secure the booking, the builder asks for an advance/large payment to seal the deal.
Since funding a housing requirement is not a small deal, you’re left with little options to pay upfront and don’t want to sell the current property until you occupy the new one. In such situations, a Bridge Loan comes handy. It offers you a loan of high quantum on your current property.
Advantages of Bridge Loans:
- The eligibility criteria is relatively simpler when compared to a standard home loan since it's a short term loan where the existing property acts as a collateral.
- Flexibility to choose a term of your choice from the available options is left to the borrower.
- Affordable interest rates since the rate card is more or less on par with Personal Loans.
- The repayment is done in equated installments where the borrower pays the interest charges until the existing property is sold off, post which the principal loan amount can be remitted within the repayment period.
The interest rates vary between 13.50% pa to 18.00% pa. depending on the bank in question. You can inquire with the bank directly on the latest rates since this loan is yet to be fully explored or sold as a mainstream retail loan for individuals in India.
Leading banks and financial institutions such as HDFC, Bank of Baroda, SBI, ICICI and others offer Bridge Loans for short term housing requirements. This loan is also available to businessmen and corporates to meet their short term working capital requirements where existing assets is held as collateral by the bank until full repayment of the borrowed loan amount.