Home Loan Talk – Bridging Finance
08 Oct 2007 / by Denise Simpson
In today’s market, a substantial amount of home loan applications are applied for with costs. In other words, the bank is required to lend the selling price plus transfer fees, legal and bank costs.
To enable the transfer to go through quickly, the bank may release the legal fees to the conveyancing attorney prior to registration of the home loan. If the bank elects not to advance the legal and bank costs, this has to be funded by the purchaser. If he does not have this cash available, he has the option of applying for bridging finance. Bridging finance is a short term loan used to gain access to necessary funds, against future income.
In many circumstances, a home loan and transfer is dependent on the proceeds coming from the sale of an existing property. The transfer of the second property will only take place once the bond of the existing property has been cancelled. This could hold up transfer of the new purchase, and could cause a chain reaction of delays.
To avoid the above delays, there are bridging finance companies that will pay up to 80% of the proceeds expected from the sale of existing property prior to registration and transfer. The seller, who is in urgent need of cash, can have immediate access to the funds.
This may sound complex from a legal perspective, but it is a relatively straightforward procedure with which all conveyancing attorneys are familiar.
Bridging finance can also be obtained if a home is being renovated, and a further loan on an existing bond has to be registered. The delay in this sort of transaction can be up to 2 months, and by using bridging finance, you can save time and money.
Obviously, the bridging finance company will require remuneration for their services and the fee can be quite hefty, depending on the amount of the loan and the period for which it is granted. Because of its short term nature, bridging finance is usually granted for a period of between one and three months. Interest charges in the first month usually range between 3 and 5 percent of the total amount of the loan; however, this figure does tend to increase to a higher percentage if the finance is required for a longer period.
The cost of the bridging finance should be carefully weighed against the relief from the immediate financial situation and the time saved. Remember, the quicker the transfer, the less occupational interest paid by the buyer.
Should you wish to apply for bridging finance, and are concerned that you may be overcharged, it would be best to ensure that the company you use is a member of the Bridging Finance Association of South Africa (BFASA). Formed in 2007, the organisation states that their aim is to ensure the long-term sustainability of the bridging finance industry. This will be achieved by participating in Financial Industry discussions and forums, and creating an environment within which members can share valuable information, as well as promoting ethical and socially responsible conduct by their members.
For a list of current members, or to contact the BFASA, logon to www.bfasa.org.za.
src: privateproperty.com