ATM :: Understanding bridge home loans!

by Desk on 25, February, 2014|


Are you one of those seeking to buy a new home but waiting to sell your old home or property for down payment? If you are losing sleep over down payment for your new dream home unless your older property is sold and funds transferred into your account, bridge home loans can be a good option for you. So what exactly is a bridge home loan?

Bridge loan is basically a short term loan lending you the money for down payment to buy the new house till the time your current house gets sold. Bridge home loan is useful in today’s day and age as a lot of people sell their existing property and use the funds to upgrade their homes or buy a new home or a dream home. Banks usually provide a one year window for users availing bridge home loans to pay back the amount to the banks. Any excess amount used as a down payment for the new house is then converted into an equated monthly installment.

Availing Bridge Home Loan: The process of availing a bridge home loan is much the same as one required to avail a normal home loan in terms of documentation required and overall eligibility criteria.

Banks offer bridge loans to clients only after he or she has entered into a formal agreement for the sale of his or her property. In case there has been no formal agreement to sell the existing property, banks usually offer a 6 month to one year window to sell the property and pay back the loan. The maximum tenure for bridge loans is 2 years. So basically home bridge loans offer customers some time to get their property disposed off while offering them the funds to immediately acquire their new home. In case the user is unable to sell off his or her property in the stipulated period, the bank offers the customer to get the home loan converted to a simple mortgage loan. The bank will keep the old property as mortgage and convert the bridge loan to a normal home loan with a higher rate of interest.

Eligibility Criteria for Bridge Loan: Bridge loan is given to any individual who is at least 21 years of age and rightful owner of the existing property. It provides funds either equivalent to the value of the existing property or 80% of the cost of the new property to be acquired. The credit history, assets and liabilities are other criteria that are used to reach a final amount for the bridge loan agreement.

Banks assess your income documents, bank statements and credit history in the usual way they assess a home loan application. Legal documents of both the property needs to be submitted for verification and to see that the properties are free from any legal liabilities. There will be a technical verification too for the properties to assess its value. The legal documents of the existing property need to be mortgaged with the bank till the repayment is over. One can repay a bridge loan by asking the buyer of your existing property to issue the payment cheque favouring the bank,

Repayment options for Home Bridge Loans: Repayment for the home bridge loans is done by paying equated monthly installments or paying interest on the loan amount till the time the property is disposed off. Once the property in question is sold, the borrower can repay the entire loan amount within the stipulated two year window.

Interest Rate: Since bridge loans are short term loans, they charge a higher rate of interest than normal home loans. Costs and fees are also higher as compared to a normal home loan.

Banks Home Loan Interest Rates Bridge Home Loans Interest Rate Tenure for Home Loans Tenure for Bride Loans
SBI 10.15% up to Rs 75 Lakh 13.75% Between 5 years & up to 30 years 36 Months
HDFC Bank 10.5% up to Rs 30 Lakh 14%-18% 5 years & up to 15 years 12-36 Months
LIC Housing Finance Ltd 10.20% – 12.25% 13.5-17% 5 years & up to 15 years 12-36 Months
ICICI Bank 10.75% up to Rs 75 Lakh 14%-18% 5 years & up to 15 years 12-36 Months
Bank OF Baroda 10.25% up to Rs 75 Lakh 14.25% Over 5 years & up to 15 years 36 Months
Source: Bankbazaar

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