When applying for a bridging loan, several types of finance are available depending on your circumstances and how you intend to secure the loan. The loan will be assessed as either a first, second, or third charge, with the right option for you determined by a range of criteria.
In our short guide, we examine the different charges that can be applied to bridging loans in more detail.
What Are Charges On A Bridging Loan?
If you are offered bridging finance, the capital involved will be identified as a first, second, or third charge, depending on whether you own your property or if it has been used as security for other forms of finance. The terms ‘first’, ‘second’, and ‘third’ indicate the order in which your secured bridging loan will be paid off, should you default on your payments or the property is repossessed.
The Different Types Of Bridging Loan Charges
If you have secured a bridging loan on your primary home and there is no other outstanding finance, such as a mortgage on the property, then the loan will be classed as a first charge. This means that should you default on your payments, or the property is repossessed, your bridging loan will be the first debt to be paid off from the sale proceedings.
A bridging loan will be classified as a second charge if you already have an outstanding mortgage secured on the property concerned. As the mortgage will take precedence over a second charge bridging loan, it will get paid first from the sale of the property should it be repossessed, or you are unable to make your payments. The bridging loan will be second in the queue to be paid from any equity left from the sale once the first charge (the mortgage) has been settled.
It is possible to obtain a bridging loan on your property, even if two other debts are already secured against it. However, many bridging loan companies are reluctant to offer third-charge bridging finance as they will be technically at the back of the line when it comes to repayment.
As a result, they may have to look for alternative ways to recoup their money should you default on a third-charge bridging loan. This type of loan charge also has its risks for the borrower as it adds an extra financial burden, so it should be considered very carefully.
Always Get The Best Advice
With both second and third charge bridging loans bringing their own challenges and risks to both borrower and lender, it is essential that you get the very best advice before deciding to apply. Whatever the charge, Specialist bridging loan brokers like Finbri are ideally placed to provide you will all the information you need, as well as the best quote, to help you make the final – and right – decision about whether a charge bridging loan is for you.