Bridging loans: what are they?

Have you completely fallen in love with a new home? Have you not yet sold your current property, but need the proceeds to fund your new purchase?
Your solution: a bridging loan.

What is a bridging loan?

This is a short-term mortgage loan. It provides you with the funds you need while awaiting the sale of your current home. During this transition period, you pay only the interest (or nothing) on this loan. You repay the amount borrowed only once your property has been sold (within a defined period).
The interest rate may be fixed (you pay the same amount every month) or variable (depending on the market).

Which type of bridging loan?

In Belgium, there are two types of bridging loan:

The standard bridging loan
You repay only the interest during the transition period. The capital is repaid upon the sale.
The rate is similar to that of a standard mortgage loan.

The light bridging loan
You repay nothing during the transition period. The capital and interest are repaid upon the sale. In return, the rate is slightly higher than for a standard mortgage loan.

How much can I borrow?

It is granted on the basis of the estimated value of your current home.
For example, Laure and Jérémy bought a flat five years ago which they now wish to resell (estimated at €250,000, with €100,000 still to repay on their €200,000 loan) in order to buy their dream home (€450,000). They do not want to miss their opportunity and are therefore keen to make an offer on the new property, so they opt for a bridging loan. This amounts to €150,000 (the value of the flat minus the outstanding portion of the loan).
To finance the remaining €300,000, they will take out a standard mortgage loan.

For how long?

The permitted term of a bridging loan ranges from 12 to 36 months, depending on the bank.

Its advantages

• You do not put yourself under pressure by having two mortgage loans to repay, as you pay only the interest (or even nothing) until your current home is sold.
• This loan allows you to wait for a fair offer on the property you are selling, so you do not feel obliged to accept the first offer.

Its disadvantages

• This entails a risk because, if your current home does not sell or sells for less than expected, you will have to add part of your bridging loan to your new mortgage loan.
• You are not entitled to any tax benefits with this type of loan.