Bridge Loan
Calculator
Welcome to our free resource guide on multifamily, including the Multifamily loan guides, property guides, terminology, and more.
What Is a Bridge Loan?
A bridging loan is a short-term loan used to help you ‘bridge the gap’ when you want to buy something, but you’re waiting for funds to become available from the sale of something else. Often used in real estate transactions, a bridge loan provides immediate financial support for those who are between transactions and require financing quickly. Many industries also use bridge loans to finance acquisitions or restructure their balance sheets. Generally, these loans carry higher interest rates than conventional financing but tend to be more flexible and provide quicker access to capital when longer-term solutions are needed.How much can I borrow with a bridging loan?
Lenders offer bridging loans from anywhere between £5,000 to £25m or more, so the amount you can borrow will depend on your current financial circumstances and your credit history. Most lenders will allow you to borrow up to 75% of the value of your property. They generally allow you to borrow more for a first charge bridging loan than a second charge loan.Bridge Loan Formula and Calculation
Bridge loans are provided by lenders such as banks and private investors alike and are calculated based on the borrower’s expected liquid assets, credit score, projected cash flow, and current real estate opportunities. That said, every lender is different, and some will have additional costs to be added to the calculation.Bridge Loan Calculator
$200,000
$800,000
Monthly payment
$0
$200,000
$16,000
$1,016,000
What Is the Typical Payment Structure and Term on a Bridge Loan?
A Bridge loan payment structure commonly consists of regular interest payments due throughout the loan term plus a balloon payment to cover the remaining principal at the end. The interest is significantly higher than most conventional mortgages or loans, and on average, bridge loans present repayment terms ranging between 6 – 18 months and, in some cases, up to two years. Balloon payments are required upon reaching the end of the loan term, where some or all of the remaining principal must be paid off in full. If all contract parameters are met, these loans can provide great flexibility for individuals looking to purchase new assets or restructure existing debt promptly.Are Bridge Loans Amortized?
Traditional amortization is not normally available with bridge loans, as lenders are often unwilling to take on any long-term risk. Most bridge loan agreements involve repayment of the loan in full at its expiration date (balloon payment). However, some lenders may offer borrowers the option of amortizing their initial debt over time. Potential borrowers must consider all relevant details before signing any agreements regarding bridge financing. Having a clear understanding of the terms and conditions associated with the loan can make or break a transaction.When Should You Get a Bridge Loan?
A bridge loan can be a great financial tool when you are looking to conserve capital. This type of loan bridges the gap between an existing debt obligation that must be met and a new debt obligation that needs to be taken care of in the future. It is also commonly used to finance a new commercial or residential property before selling another. Getting financing for the interim period, until the already planned obligation can be fulfilled, can help provide relief for cash-strapped businesses or individuals. Typically, it is best to use a bridge loan whenever you expect a short-term liquidity crunch or have other unavoidable circumstances requiring quick access to finances.A basic example of a bridge loan calculation with possible fees is as follows:
You find a property you like, but you’re still waiting for your previous property to sell. The new property asking price is $1,000,000, but you can only front $600,000 because the rest of your capital is tied up in your current property. You require $400,000 to cover the shortfall before it’s sold to someone else.