Have you decided to buy your dream home by selling your current one? Then, you are probably looking for a gap financing option, assuming that the sale of your current home and the purchase of the next one might not happen simultaneously. Well, a short-term loan would be more suitable instead of a long-term one as it allows you to pay off the entire amount once you sell your home. How about Bridge Loans? Read on to discover some in-depth details about bridge loans in India.
What is a Bridge Loan?
A bridge loan, also called gap financing, is a temporary loan that acts as a bridge to meet your short-term liquidity requirements. When you are planning to buy a new home by selling off your old one, bridge loans allow you to fill the gap between the sale price of both the properties. The existing home, in this case, is considered the collateral for the bridge loan, meaning that the loan amount is decided based on its sale value.
The normal tenure of this loan is 12 months, and it comes at a higher rate of interest, albeit multiple benefits. If you are looking for a cheaper option, avail Home Loans from Bajaj Finserv as they offer low rate of interests in India.
What is the Quantum of Bridge Loans?
The bridge loan amount that you are eligible for, largely depends on your repayment capacity and the estimated sale price of your home. This cost will also include other charges like registration fee, stamp duty, and fees equalling four times your gross annual income or transfer fees subject to maximum of INR 50 lakhs, whichever is less.
What is the Bridge Loan Interest Rate in India?
If you have availed of a bridge loan, the existing home has to be sold off within one year, and the amount must be deposited in the loan account. The EMI is fixed by calculating the outstanding amount in the account. The rate of interest for bridge loans is exorbitantly high. If you feel that home loans are a better option, go for Home Loans offered by Bajaj Finserv, as they offer multiple benefits to the borrowers including refinance option and online account access.
How Does a Bridge Loan Work?
There are two ways in which you can structure a bridge loan. Either you can use it to pay off the liens on your existing property, or you can use it as a second mortgage on top of the liens.
In the first case, after paying off all the existing liens, the remaining amount is utilized as the down payment for your move-up home. Instead of making monthly payments on your bridge loan, this option requires you to make mortgage payments on the new home.
If you choose the second option, you will have to make the mortgage payments for the existing home as well as the move-up home. There are a number of situations where you should be cautious while opting for bridge finance, for example, a situation wherein you are unsure about being able to pay off the loan within a year. In such a situation, it is advisable that you finance your down payments with your shares, stocks, and other assets.
Bajaj Finserv is a lender who offers Loan Against Shares and Loan Against Fixed Deposits, with various benefits such as instant online approval, part prepayment facility, and zero-foreclosure charges.