What is a closed bridging loan?
A closed bridging loan has a fixed repayment date. You know precisely when the loan will be repaid because your exit is already nailed down. Maybe you have exchanged contracts on the sale of your current home and have a confirmed completion date, or your remortgage has been formally approved with a completion date set.
Because the lender can see exactly when their money is coming back, closed bridging loans are charged at lower interest rates than open ones. That certainty makes them lower risk for the borrower and the lender alike.
What is an open bridging loan?
An open bridging loan has no fixed repayment date. You still have an exit in mind, perhaps selling your current home, but you cannot yet put a firm date on it. The loan runs to a maximum term, usually 12 months, and you can clear it at any point before then.
Open bridging costs more, since the lender is left guessing about when repayment will land. What you get in return is flexibility, which suits you when your exit is believable but the timing has not been pinned down yet.
Rates and costs comparison
Closed bridging typically starts at around 0.4% to 0.7% per month, while open bridging tends to begin near 0.6% to 1% per month, sometimes more. Month to month the gap looks minor. Spread across several months on a large loan, it turns into a meaningful amount of money.
Arrangement fees, legal costs and valuation fees are much the same on both, so the interest rate is where the real difference shows. When you compare products, work out the total cost with every fee included rather than fixing on the headline monthly rate.
Which type should you choose?
Go for a closed bridging loan if your exit is confirmed and dated, for instance you have already exchanged contracts on a sale. You get the lower rate, which saves money, and the fixed timeline keeps your risk down.
Choose an open bridging loan when your exit is planned but not yet confirmed, say your property is on the market but no buyer has come forward. Be honest with yourself about the timeline, and check you could afford the higher interest rate for the full maximum term if things drag on.
Get the right bridging loan with Clearview
At Clearview Mortgage Solutions we look closely at your exit strategy and advise whether an open or closed bridging loan suits you better. Then we compare products across specialist lenders to find the most competitive rate for your circumstances.
Contact us for a free, no-obligation discussion about your bridging finance needs.