A bridge loan can be a useful financing tool when you need short-term funds between real estate transactions. But how much will a bridge loan really cost you? A bridge loan payment calculator is an easy way to get an estimate so you can determine if this route makes sense for your situation.
In this article we’ll cover
- What is a bridge loan and when is it needed
- How a bridge loan payment calculator works
- What information you’ll need to use the calculator
- Factors that impact your bridge loan payments
- Pros and cons of using a bridge loan calculator
- Alternatives to bridge loan calculators for estimating costs
What is a Bridge Loan and When is it Needed?
A bridge loan, also known as gap financing, is a short-term loan that provides funds when you need to close on a new property before selling your existing property
For example, say you find your dream home but you haven’t sold your current place yet. You may not have enough cash on hand to cover the down payment for the new home. This is where a bridge loan comes in – it bridges the gap between buying the new property and selling the old one.
Bridge loans are commonly used in real estate transactions but can also apply to other situations when you need short-term financing. Common uses include:
- Covering the down payment on a new home before selling the old home
- Business acquisitions when immediate funding is required
- Short term working capital needs
- Major renovations or repairs
- Debt restructuring
The terms on bridge loans are generally 6 months to 3 years. They carry higher interest rates and fees than conventional mortgages and require collateral like real estate or investments.
How a Bridge Loan Payment Calculator Works
A bridge loan calculator allows you to estimate your total costs by entering a few key details about the loan. Here’s what information you’ll need:
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Loan amount – The amount you need to borrow. For real estate, this is typically the down payment amount minus any cash you have on hand.
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Loan term – How long you’ll need the bridge loan for, usually 6-12 months.
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Interest rate – The annual rate typically ranges from 7-15%.
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Fees – Origination fees (1-5% of loan amount) and other closing costs.
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Existing mortgage – If you have an existing mortgage, the details to calculate the payment.
You enter these variables into the calculator fields and it will estimate your total monthly payment combining the bridge loan payment + existing mortgage payment (if applicable).
The calculator runs the numbers to determine the loan interest and fees you’ll pay over the loan term and factors that into a monthly payment estimate.
Here’s an overview of how it calculates:
- Loan amount x interest rate / 12 = monthly interest
- Monthly interest + origination fee + other fees amortized over loan term = estimated payment
You can tweak the variables to get an idea of payment amounts at different loan amounts, rates, and terms.
Information Needed to Use a Bridge Loan Calculator
To get an accurate estimate from a bridge loan calculator, here are the key details you’ll want to have on hand:
Bridge Loan Details:
- Loan amount needed
- Estimated interest rate (get quotes from lenders)
- Loan term
- Origination fees and closing costs
Property Details:
- Sale price of old property
- Existing mortgage balance and interest rate
- Purchase price of new property
- Down payment needed for new property
Financial Details:
- Cash currently available for down payment
- Income and assets
- Existing debts and monthly payments
Having these details will allow you to get the best estimate from the bridge loan calculator for your situation.
Factors That Impact Your Bridge Loan Payments
Several variables affect how much your monthly bridge loan payments will be:
Loan Amount – The more you need to borrow, the higher your payments.
Interest Rate – Bridge loans have rates ranging from 7% to as high as 15%. A lower rate can make a big difference in your payment.
Fees – Origination and other fees factor into your monthly costs. Shop around for lower fees.
Loan Term – The longer you take the loan for, the more interest you pay over time.
Credit – Your credit score impacts the rates/fees lenders will offer you. Better credit = better rates.
Existing Liabilities – Any mortgage or debts you also need to pay will increase your total monthly costs.
Cash Down – The more cash you put down upfront, the lower the bridge loan amount and payments.
Pros and Cons of Using a Bridge Loan Calculator
Bridge loan calculators offer an easy way to get an initial estimate of costs. Here are some pros and cons:
Pros
- Provides a ballpark estimate of monthly payments
- Lets you easily compare different loan scenarios and terms
- Quick and easy to use requiring minimal information
- Offers initial figures to help determine if bridge loan is affordable
Cons
- Only provides an estimate, not guaranteed figures
- Doesn’t account for all potential fees and costs
- Still need to speak with lenders to get actual quotes
- Doesn’t factor in eligibility or approval
While handy for initial estimates, the calculator should be just the starting point. Be sure to consult with lenders directly for accurate rates and fees tailored to your specific financial situation.
Alternatives to Bridge Loan Calculators
Other options beyond an online calculator to estimate potential bridge loan costs include:
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Get quotes from lenders – Reach out directly to bridge loan lenders to request quotes for your particular loan details and property. This will provide tailored rates and costs.
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Loan amortization calculator – A loan calculator lets you input loan amount, rate, term and will amortize the monthly payment for you. Add estimated fees to get total costs.
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Talk to real estate agent – Agents often have relationships with lenders and can provide guidance on average bridge loan rates and fees in your area based on your scenario.
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Accounting/finance expert – Consult an accountant or financial advisor to review your overall financial picture and provide advice on managing bridge loan costs.
Whichever method you use, be sure to get multiple quotes before moving forward with a bridge loan. The rates and fees can vary widely, so shopping around is key to finding the most affordable option.
Should You Use a Bridge Loan?
Before deciding on a bridge loan, carefully consider the costs, risks and alternatives. A bridge loan calculator can help provide initial estimates. But before borrowing, ensure you have a solid exit strategy to pay off the loan and that you can manage the higher monthly payments. Otherwise, this short-term financing option could become a costly burden.
Understanding How Bridge Loans Work
Running a business entails making strategic plans and arranging your finances. It also involves acquiring the right commercial property that can host your operations. And to purchase an office, building, or retail property, business owners take advantage of commercial mortgages.
However, what if securing a commercial loan from a bank is not an option? If you’re looking for a flexible, short-term loan that can help you buy a new commercial property, there’s a way. This is where a bridge loans can finance your purchase while you’re looking for a long-term commercial loan.
Our guide below will discuss how commercial bridge loans work and when it makes sense to take this type of financing. We’ll also talk about its interest rate, payment structure, cost, as well as its pros and cons.
What are Bridge Loans?
Bridge loans, as the name indicates, are a type of financing that bridges the gap between a real estate purchase and long-term financing. It comes with short terms, 1 year to 3 years, and is secured by property signed as collateral for the mortgage. This type of loan is considered a “temporary loan” that helps business owners buy time to find an exit strategy, such as refinancing their loan or selling their existing property. If you’re looking for quick financing without the taxing approval process, this option might work for you.
In residential financing, bridge loans are used by homebuyers to purchase another house before they can sell their current home. Meanwhile, in commercial real estate, bridge loans are used by businesses to renovate their property or purchase a new one. Borrowers who cannot qualify yet for conventional commercial mortgages may apply for bridge loans.
Renovating Your Commercial Property
If you have an owner-occupied commercial property, you can use a bridge loan to rehabilitate your current premises. The bridge loan can fund the renovation work during the short term. Then, when you refinance, it can be replaced with a long-term mortgage that has more manageable payment terms. Refinancing helps you shift to a long-term mortgage that will restructure your payments to pay off your debt.
Refinancing is obtaining a new loan to replace your existing mortgage. This is an exit strategy you can take once the short term on a bridge loan is through. Refinancing is just like taking a new loan, which means you need to have a high credit score backed by a pristine financial background.
The bridge loan can be used as a down payment to purchase new location and pay off the remaining mortgage on your current property. If you don’t have time to raise down payment (when you need to time your purchase), bridge loans can work for you. Once the short term ends, you can refinance to a traditional commercial loan to pay your lender.
Borrowers can use a bridge loan to purchase new commercial property. Business owners may use this to acquire a commercial property before their competitor buys it first. Since approval is faster for a bridge loan, you can secure the property without waiting for months on a traditional commercial loan. Likewise, once you can arrange for refinancing before the short term ends, you can transition into a traditional commercial mortgage.
What is a Bridging Loan? How Does Bridging Finance Work?
FAQ
How do you calculate bridging loan amount?
How much would a $100,000 bridging loan cost?
What is the average interest rate on a bridge loan?
What is an example of a bridge loan payment?
How do I calculate my monthly payments on a bridge loan?
Calculating your monthly payments on a bridge loan is vital before entering into any agreement. Fortunately, there are online calculators available to assist with this task. Bridge loan calculators can estimate overall costs by entering information such as interest rate, loan amount, and the repayment period.
How much can you borrow with a bridge loan?
3.**Borrowing Amount**: The amount you can borrow with a bridge loan varies widely.If you qualify, you could borrow anywhere from several hundred thousand dollars to more than $1 million .
What is a bridge loan calculator?
This bridge loan calculator allows you to estimate the total cost of your bridge loan as well as the expected amount of your new mortgage. A bridge loan is a type of hard money loan that can help a borrower purchase a property before selling their current home.
What is a bridge loan?
Bridge loans have a similar payment structure to traditional commercial loans, though with much shorter terms. Some bridge loans can be as short as 6 months, but most lenders offer 1 year to 3 year terms. These come with an interest-only payment, which means a borrower only has to cover monthly interest charges for the entire loan.