What is a bridge loan?
The bridge loan is a regular mortgage loan that allows you to cover the expected proceeds from the sale of a first property in order to finance the acquisition of a second one.
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Case study
You own a house and your family is growing, or you have found a new job in another region and need to move and buy a new house.
Problem: you absolutely need to sell your first property acquisition to finance the second. However, selling your current house can take time to find an interested buyer. Yet, you don’t always have the option to wait and you don’t want to miss the opportunity to buy this second property that meets all your criteria.
In this case, your bank can grant you a bridge loan while you complete the sale of your first property acquisition.
Regular mortgage loan
The bridge loan is a mortgage loan that meets the ordinary conditions applicable to all mortgage loans.
A two-year period
An important note, however, from usual banking practice, you have a two-year period to complete the sale of your current property.
Feasibility and coherence
By taking out a bridge loan, you are faced with the repayment of two properties, so it is crucial to ensure the feasibility of this loan in light of your financial capacity.
An example is worth a thousand words: you currently own a house whose current market value has been estimated at €200,000. You still have a balance of €100,000 to repay on this first mortgage loan. You wish to buy a new house valued at €250,000. You will therefore take out a loan worth €350,000. €250,000 corresponding to the value of the second acquisition and €100,000 corresponding to the balance of your first mortgage loan. Since the combined market value of the two properties is €450,000, this bridge loan is feasible.
Once you have sold your first house, you can deduct the sale price of €200,000 from the new mortgage loan granted to you to purchase your second acquisition.
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