Bridge Loans / Swing Loans
Sometimes timing just doesn’t work out exactly right. You’ve found the perfect new house and want to move forward with the purchase. Everything lines up, you qualify for a low interest rate and you are confident you will be approved for financing. The only caveat is that you’re waiting for your current property to sell in order to use those funds to afford the down payment or to finance the new one.
A bridge loan, or swing loan is a short-term loan that allows a homebuyer immediate access to financing. This loan is an option for buyers who want to move forward and purchase property while they are waiting to secure long term financing. The intention is that the swing loan will be paid off immediately once the buyer’s old home is sold.
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Benefits of a Swing Loan
The short answer here is that the homebuyer can receive fast financing to purchase a new home while waiting for their old home to sell. In a competitive market, this could mean the difference between affording a new home or missing out on the purchase.
A swing or bridge loan is also easier to obtain than a line of credit or home equity loan. Although a home equity loan is usually cheaper, some lenders won’t give this type of loan out for a property that is currently on the market.
This loan is a good option for a homebuyer who is confident their old home will sell quickly and needs access to immediate financing to purchase a new home.
Risks Associated with a Swing Loan
The downside is that these loans are typically more expensive. A swing loan will have a higher interest rate, sometimes up to two percent more than a traditional loan. This isn’t an issue if the borrower is able to pay the loan off quickly before the interest starts to accumulate. Sometimes swing loans will have a deferred initial payment or won’t require the borrower to start paying back the loan right away. The interest will still accumulate and will be due when the loan is paid off.
The other risk with a swing loan is that if the old house doesn’t sell quickly the buyer could end up owning two properties and owing a mortgage on both.
If you’re in a position where your old home is on the market, and you’re ready to purchase a new one, it’s important to understand your financing options. Give [MORTGAGE COMPANY NAME] a call at [COMPANY PHONE NUMBER] so we can help point you in the right direction.
