Bridge loans are designed as a short-term lending option. This loan product has a much higher interest rate and is designed to be paid off once long-term financing is secured. Many use this type of loan when purchasing a new home while trying to sell their existing property. Since these loans are more complicated than conventional financing, many individuals become confused about calculations. Here's how to calculate a bridge loan.
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Things you need
Determine your loan amount. Evaluate the amount of money you need to borrow. Take the amount of money owed on your home and add any additional funds needed; such as a down payment for the new home. This will be the amount needed for bridge loan financing.
Determine the interest rate. Rates on bridge loans are typically at least two percentage points higher than conventional loan rates. Large institutions don't always publish their bridge loan rates online, so you may need to call to get an exact rate.
Estimate your loan term. Usually your loan term will be measured in months instead of years. Most financial instructions offer terms up to 36 months; however you may receive a better rate on a shorter loan term.
Consider any points. Sometimes you can pay points to get down the interest rate. Although this may be expensive, these are typically tax deductible over the life of the bridge loan. Since the loan term is short, you can recover the money fairly quickly.
Calculate your bridge loan. The easiest way to calculate your bridge loan payment is to use an online calculator such as the one available at 1st bridge.com. When you enter in your loan amount, interest rate, term and points, it provides your monthly payment in seconds.
Tips and warnings
- Bridge loans can be very expensive. When shopping for bridge loans, carefully consider all of the costs. Closing costs can be more expensive than traditional loans.
- Pay off the bridge loan quickly. Most lenders provider bridge loans up to 36 months, but you should pay off this loan as soon as possible. Because of the extra fees associated with this type of product, it's wise to actively seek other types of financing.
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