Definition
Bridging Loan
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A bridging loan is a short term loan to help finance a shortage of funds to purchase a property due to the time lag that exist between an owner selling an existing property to the time sales proceeds are collected.
If a homeowner needs to sell the existing house in order to be able to afford buying a new one, he would be looking at a period of being homeless.
Whether he sell first before buying, or buys first before selling, he will either have to live in a hotel or in a rented apartment for a period of time, before he can move into the new house.
This is because it takes time for a house to be sold and for the proceeds to be banked in.
A bridging loan serves to bridge that gap of funding shortage.
These are short term loan with high interest rates that can play a crucial part in helping households relocate.
It allows a home buyer to have enough funds to complete a purchase transaction before the old house is sold.
Once the proceeds from the sale of the older house is ready, it will be used to pay off the bridging loan.
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