A bridge loan can be a useful solution in certain situations, but there are also some disadvantages and risks to take into account:
1. Relatively high costs
- Interest: The interest on a bridge loan is often higher than on regular mortgages or long-term financing.
- Exit fee: An exit fee may be charged at the end of the term.
2. Shorter term
- Bridge loans are usually short-term (e.g. 6 to 24 months), meaning the financing must be repaid within a limited time. This can create pressure, especially if a sale or refinance takes longer than expected.
3. Stricter conditions
- The maximum loan-to-value (LTV) and loan-to-cost (LTC) are usually limited, which means you may need more of your own funds.
- The object must usually meet specific requirements, such as a fixed destination or an irrevocable permit.
4. Risk of delay or market changes
- If the project is delayed or the real estate market deteriorates, it may be difficult to repay the loan on time.
- This may result in additional costs, such as renewal fees or a forced sale at a lower price.
5. Limited flexibility in refinancing
- If you are unable to find suitable follow-on financing, this can create financial pressure.
Bridge loans are therefore a suitable solution for specific situations, but it is important to fully understand the risks and conditions before taking out such financing.