What is a bridge mortgage? Find out how it works and how to benefit

The decision to buy a new home is one of those key moments in life that we will remember for a long time. The selling process is full of challenges, especially when it comes to dealing with red tape and contractual agreements.

To avoid potential legal problems in the future, it is important to be well informed about all aspects of the process. With this in mind, a key piece of the puzzle is understanding the figure of the bridging mortgage, a financial tool that can make all the difference when buying a property, especially for those people who are unwilling or unable to sell their current home while still having a mortgage to manage.

In today's article, we explain in detail what a bridging mortgage is, how it works and how it can become your best ally for your next home. Let’s go!

What is a bridging mortgage and how does it work?

A bridging mortgage is a type of loan that allows you to buy a new home before you have sold your current home.

This financial product is called a bridging mortgage because it acts as a bridge between the mortgage on your current home and the one you need to buy the new one. In other words, it is a single loan that covers both operations. This product is ideal for those people who have a mortgage and are thinking about buying a new home, but are unable or unwilling to sell.

But how does a bridging mortgage actually work? Does it mean I have to pay two mortgages? There are three stages to the bridging mortgage process. Let’s look at them in detail: 

Contracting of the bridge mortgage

Firstly, the product is contracted with a bank that is responsible for granting a loan that covers both properties: the one to be purchased and the one that hasn’t yet been sold. In this way, the two properties are mortgaged under the same loan. In other words, the money borrowed is used to buy the new house and pay off the mortgage on the old one.

Pay lower repayments until you find a buyer

It has a maximum time limit for selling your old residence. During this period, when you are using the bridging mortgage, you don’t pay the full amount each month. In contrast, the monthly payments only cover the part corresponding to the capital and interest of the new property during this period.

Selling your previous home

The remaining capital and interest will accumulate until the old home is sold. When a buyer is found, the money from the sale will be used to pay off the previous mortgage, as long as the sale takes place within the specified period. It is essential, therefore, to be aware of and adhere the maximum time limits set by the bank for selling the old home.

Conditions for applying for a bridging mortgage

Before taking out a bridging mortgage, it is advisable to check the conditions set by the various banks and to seek professional advice. Here are some of the considerations you should take into account before taking out a bridging mortgage:

• Ability to pay both the bridging mortgage and the current one.
• The likelihood of selling your current property
• Sufficient equity in the current property

Advantages and disadvantages of a bridging mortgage

Like any decision in life, considering a bridging mortgage involves weighing up a number of pros and cons. Let's take a closer look at the most important ones.

Advantages of a bridging mortgage

• Greater flexibility. The special thing about a bridging mortgage is that it makes it easier for you to buy a new home without having to wait until you sell your old one. This makes buying and selling a quicker and safer process.

• Simplified procedures. By choosing this mortgage product, you will avoid many operations and bureaucratic procedures. 

• Better payment options. Having two mortgages means paying twice every month. With a bridging mortgage, you save this expense and pay less. The reason you pay less is because the bank offers you lower payments until you sell the old property.

• You have more time to sell. This financial product saves you time negotiating the sale of your old home. It guarantees that you will get a fair price without having to rush, while giving you several years to sell. It also increases your chances of getting a good deal.

Disadvantages of a bridging mortgage

• Involves additional costs. The costs of opening the account, taking out the loan, and the costs of valuing, notarising and registering both properties are additional to the cost of a bridging mortgage.

• Increased risks. If the old home is not finally sold within the agreed period, it represents a major risk. In this case, the bank can increase the monthly mortgage payment, as well as the interest. In the worst case, you could lose all your assets to cover the payment. 

• More demanding conditions. The bank may require you to meet a number of conditions before offering you the financial product, which are more demanding than those for a normal mortgage. For example, sufficient income to cover the mortgage, a good credit history or savings to cover expenses, among others.

Buying smart with Prime Invest

Just like the confirmatory deposit contract , where the buyer and seller seal their commitment, the bridging mortgage plays a crucial role in the mechanism of property transactions. Are you ready to invest in your new home? At Prime Invest we have new property promotions in the luxury and residential areas of the Costa del Sol, Ibiza and Punta Cana.

In addition, our experience and knowledge of  property market trends make us the ideal allies to advise you on the intelligent purchase of a new property. Our team of expert real estate agents are at your disposal to provide you with real estate advice and guide you through every step of the buying and selling process. Contact us and experience a calm and secure buying and selling process.