Sometimes
buying a new house requires the selling of your
old one. Bridge loans are a type of balloon loan
that allows you to take a portion out of the
equity of your old home before it sells, and use
that money towards the purchase of your new
home. The terms can vary with bridge loans, and
while some allow you to completely pay off the
mortgage
of your old home first, others simply pile the
new
debt on top of the old.
Here are some
typical guidelines for bridge loans:
-
The loan
has a one-year term.
-
The loan
is used to pay off the existing mortgage,
and the remaining money is used as a
down payment on the new home.
-
The
borrower will begin to make interest-only
payments on the loan if the house is not
sold within six months.
-
The
bridge loan is paid off when you sell your
existing home. If it is sold within the
first six months, any unearned interest will
be credited back to you.
-
The
mortgage
on the
new home must be financed by the same lender
that originated the bridge loan.
Bridge
loans often require a higher interest rate
and origination fees, and careful
consideration should be taken before
obtaining one. Also, if your house does not
sell quickly, you could find yourself
scrambling to come up with money to pay two
mortgages. An alternative might be to take
the money from a 401(k) plan or take out
loans secured by stocks or other assets.
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