Remortgage After A Bridging Loan

Bridging loans allow you to purchase or refinance a property quickly, opening the door to transactions that would not be possible using a standard mortgage.

That said, it is a short-term finance product that is not a suitable long-term solution to financing a property.

For this reason, an exit strategy is required – how you plan to repay the loan. This is where remortgaging comes in.

In this guide, we break down how remortgaging after a bridging loan works, when you can do it and how mortgage lenders view these applications.

How does remortgaging after a bridge loan work?

Remortgaging after a bridge loan works by raising money with a new mortgage lender to repay your bridging finance.

You approach a new mortgage lender to repay your facility, and they will assess the application in much the same way as if you were repaying a standard mortgage.

One complication is around deciding how much to borrow. If the interest on your current bridge is rolled up, your outstanding balance and redemption figure will increase each month.

For this reason, it is best to allow 8 weeks for the remortgage to complete and set your borrowing level at your current balance, plus 2 additional months’ interest.

Of course, if you’re planning to remortgage to capital raise, you then simply add your desired level of capital raising onto this figure.

Why do people look to refinance their bridging loan?

People look to refinance their bridging loans for 2 reasons:

• Loan term – The maximum term on a bridging loan is usually 12-18 months, meaning it is not a viable long-term finance strategy and must be exited relatively quickly.
• Interest costs – Bridging loan rates are higher than those offered on mortgages, so refinancing your loan will save you money if you plan to hold the property for the longer-term.

If you plan to sell the property but your loan term is coming to an end, consider a refinance bridging loan, rather than a remortgage as a better solution.

This will, in effect, extend the term of your borrowing potential, without locking you in to a longer-term mortgage with early repayment charges.

Read more – Bridging loan for a self-build or Divorce settlement – how a bridging loan can help.

When can you get started with your remortgage?

If you’re planning to remortgage, you can, in theory, start the application straight away.

There are some scenarios where it may be better to wait a while though.

Firstly, if you’re refurbishing your property through property refurbishment finance, then it’s better to wait until the works are almost complete.

This will ensure that your new mortgage is based on the new, higher value, which may allow you to secure a better interest rate (due to the new, lower loan to value), or even release equity if you’re looking to maximise your borrowing.

Secondly, some mortgage lenders have a rule known as the 6 month rule.

The 6 month rule means that they won’t lend on a property that has been purchased within the last 6 months. Some lenders will make an exception if refurbishment work has been carried out.

Therefore, if you’re looking to refinance within 6 months, either look for a lender that does not operate the 6 month rule, or consider waiting.

Consider whether the rate you can secure is sufficiently higher than if you waited until 6 months. You can then calculate the cost of staying on a bridging loan for this period to find out which option is the cheapest in the long run.

Read more – Buy to let mortgages vs bridging loans or Bridging loan broker.

How do mortgage lenders view these applications?

Mortgage lenders generally have no problem repaying bridging loans as long as they understand the reason that a bridging loan was taken in the first place.

Most lenders view a bridging loan in much the same way as any other financial product and are happy to repay as long as it’s up to date, the property is in mortgageable condition and you meet the lending criteria.