Few households can afford to buy new cash property before selling their home. So, to facilitate the transition between the two transactions, a solution exists. The bridging loan, also called bridging loan, makes it possible to finance a new property without waiting for the sale of the previous home. This specific credit thus allows the buyer to stay in his home, while waiting for the latter to be sold. “It is a loan that has become more democratic with the health crisis, specifies Sandrine Allonier, spokesperson for the online broker Vousfinancer. When you want to leave a metropolis, it is often easy to sell your property because demand is strong, but it is much more complicated to find a new property. The bridge loan allows you to give yourself time to find the ideal property.”
The bridge loan is a short-term loan (between 12 and 24 months), which makes it possible to obtain financing to buy a new property even before having signed the sales agreement for your home. The amount of credit granted by banks generally amounts to a sum of between 60 and 90% of the value of the property for sale (90% if you have already signed a sales agreement), subtracting any remaining due. . The percentage is often correlated to the state of the market: the easier the property is to sell, the greater the amount of the loan. To qualify, it is necessary to request an estimate of the property for sale by a real estate professional and send it to the lending bank.
The bridge loan cheaper than a move
“The bridging loan often has a bad image in the eyes of the general public, because of its supposed high cost, deplores Sandrine Allonier. But in fact, it is a much cheaper solution than moving to a furnished apartment between the sale of your residence and the purchase of the new home. If the credit rates are slightly higher than for a conventional loan (between +0.2 and +0.4%), the total cost of a bridging loan remains relatively low since the duration of the credit is short (6 months in mean). The total cost of a bridging loan, which can be around 1,000 euros for a short loan, is therefore most of the time much lower than that of a move and a temporary rental.
Unlike a conventional loan, the amount of the bridging loan must be repaid in cash, once the property has been sold. The interest on the credit as well as the insurance can, however, be paid either during the term of the loan in the form of monthly payments (partial deferred) or at the end of the loan in one go (total deferred). In the latter case, some banks may apply a slightly higher rate (+0.1%). Once the property is sold, the money released is used to repay the credit in one go.
Here’s to the refund. On the purchase side, if the amount of the bridging loan obtained with the sale of the property is not sufficient to finance the new accommodation, the bank can offer a new loan in parallel, in order to allow the buyer to obtain financing to pay the difference. . We then speak of back-to-back bridging loan, or associated bridging loan.
The back-to-back bridging loan to buy a more expensive property
Let’s take an example to better understand the principle of the back-to-back bridging loan. A couple of borrowers owns an apartment worth 200,000 euros – for which the loan taken out has already been fully repaid – and is looking to buy a house that costs 300,000 euros. This couple unearths the house of their dreams before having sold the apartment and must therefore go through a bridging loan.
The calculation is as follows:
Of the 200,000 euros (value of the apartment), the bank will agree to lend 70% of the property, ie 140,000 euros of bridge loan. On the 140,000 euros of the bridge loan, the couple will only pay interest until the time of the sale of the first property: 210 euros per month. To be able to buy this house at 300,000 euros, he will have to take out a “classic” additional loan of 160,000 euros at 1.5% over 20 years, for a monthly payment of 765 euros per month. The couple’s total monthly payments for the duration of the bridging loan will therefore be 975 euros (765 euros of classic loan + 210 euros of bridging loan).
If the bridging loan allows a household to buy a new, more expensive property, while remaining in their home for the duration of the transaction, the situation becomes more complicated when the loan on the property for sale is not fully repaid. Let’s take the example of our couple, assuming that this time they have not finished repaying their credit on the property for sale. Assuming that there are 100,000 euros left to repay (loan over 20 years) our couple must thus pay monthly payments of 1,012 euros, even before obtaining the bridging loan, i.e. a debt of around 25%.
The amount of the bridge loan amounts to 40,000 euros (200,000 x 70% – 100,000 € = 40,000 €), i.e. a monthly payment of 60 euros (interest rate + insurance). It remains to add the monthly payments of the additional credit, which amount to 1,242 euros. By combining the monthly installments of the credit for the property for sale (1,012 euros), the monthly installments of the bridging loan (60 euros) and the monthly installments of the additional credit (1,242 €), our couple should thus repay 2,314 € per month to be able to finance their new property. . The problem is that this monthly payment of 2,314 euros greatly exceeds the authorized debt ratio.
The alternative of the purchase-resale loan
If our couple is unable to take out a bridging loan, an alternative solution is available to them to finance their new property: the purchase-resale loan. The principle is the following. The bank buys back the amount due for the property for sale and offers a new long-term loan by grouping the different monthly payments (bridge loan + conventional loan). Loans are thus smoothed over time, which allows future buyers to pass below the debt ratio. The cost of a bridging purchase loan will, on the other hand, be slightly higher than a traditional bridging loan, the interest rate of the bridging loan being higher with the buy-sell option (+0.4 points on average).
To understand the interest of purchase-resale credit, let’s take the example of our couple one last time. The bank buys back the balance due on the loan for the property for sale (100,000 euros), which allows the couple to obtain a bridging loan of 140,000 euros, at 1.8% for a maximum of 2 years, i.e. 210 euros monthly. By adding the monthly payment of the additional credit of 260,000 euros over 20 years (1,243 euros), the total monthly payment for our couple thus amounts to 1,453 euros (210 euros of relay credit + 1,243 euros of additional credit). Once the property has been sold and the reinjection of the remaining 60,000 euros (200,000 euros – if the accommodation is sold at the price of its estimate – 140,000 euros), the monthly payments to be paid will drop to 956 euros The debt ratio n is not outdated and our couple can buy their new property before selling the previous one, without having to move.
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