Bridge loans are specially designed to meet requirements for the interim period, between sale of an existing house and purchase of a new one.
Apart from offering regular new home loans and house renovation loans, housing financial institutions offer the facility of bridge loans too. Consider the example given below to understand the same in a perspective.
Manoj and Roopa were living in their own house in Ramamurthy Nagar along with their daughter Surabhi. Since their work place was in J.P. Nagar, travelling to and fro on an everyday basis to their respective offices was cumbersome. Also, Surabhi was ready for her schooling stint which prompted them to contemplate moving out from their current house to the vicinity of J.P. Nagar.
It was through Manoj’s colleague that an apartment being constructed in J.P. Nagar was found attractive enough for investing and the 3-BHK seemed good enough. The problem seemed to be the immediate cash required for payment. The new house could be bought only after they sold their existing house. If they waited for their house to be sold for buying the new J.P. Nagar flat, they could miss the opportunity of bagging the special price from the builder as it was in the finishing stages; and proximity to office and school was another attractive factor.
The compulsion of arranging the immediate substantial payment to the builder was the deciding factor for the choice of loan. And the couple opted for a bridge loan from a housing finance institution.
Home bridge loans are specially designed to meet such requirements for the interim period between sale of the existing house and purchase of a new one. The HFI will lend approximately 80 per cent of the value of the new property.
This is useful when you do not want to take a long-term home loan. It gives you enough time to sell your existing property and make payment for the new house and also pay off the loan quickly.
How to go about it
The loan will be sanctioned only upon entering into a formal sale agreement with the builder of the new house.
The documentation process will be similar to that of taking a loan on a new house/flat but the duration of the loan will have to be defined, which usually will be for a period of two years. What is to be noted importantly is that the interest rates for these types of loans are higher than the normal long-term loans since the duration of bridge loans are shorter.