Sell to Buy : The Bridge Loan

In cases where you want to sell a property in order to acquire a new one, you may opt for a bridge loan. This facilitates the financing of the purchase of a new property even though you have not yet sold the previous one.

Agenz decodes for you the main principles of this type of loan.

What is a bridge loan ?

A bridge loan corresponds to a partial advance (up to 90% depending on the offers) granted by a bank on the amount of the sale of your current property, intended to finance the acquisition of another real estate property. The interest rate for this type of loan is generally between 3 and 5%. A bridge loan is a type of loan known as "in fine" loan, which involves the repayment of the borrowed capital in full and in a single installment: at the last due monthly payment. However, you can either opt for only an amortization deferral or for a total deferral.

💡 Amortization Deferral : you repay the capital at the end of the contract as imposed for in fine loans, but pay the interest and insurance contributions each month.

Total Deferral (also called "grace period"): you repay the capital AND interest at the end of the contract only. Only insurance contributions are deducted each month.

Why opt for a bridge loan ?

Managing both a sales project and a purchase project simultaneously is never an easy task: it is utopian to hope that these projects conclude at the same time, even though they require very different procedures and formalities. A bridge loan allows you not to have to sell your property hastily (and therefore at a price lower than hoped) in order to finance your purchase but also, conversely, not to miss a great real estate opportunity (by the way, have you checked our listings ?) because you refuse to undervalue your current property.

How much can I borrow with a bridge loan ?

The amount of capital borrowed (i.e., the percentage of advance granted on the expected sale amount of your current property) depends on

• the bank with which you sign
• the stage of progression of your sales project.

Thus, if you have already obtained a sale agreement, you can claim a higher percentage of advance, as the bank estimates that the sale is almost certain. Banks generally grant an advance of 50 to 80% of the estimated sale value of your property. The estimation of the sale price of your property is generally carried out by a real estate expert mandated by the bank. You can get a first estimate of your property in 2 minutes by clicking here !

You will notice that the credited amount does not depend on the value of the property you are going to buy. Of course, depending on the amount of your new acquisition, an additional loan may be set up.

What are the drawbacks ?

The repayment of a bridge loan at its expiration date is necessarily made in a single installment. The duration of a bridge loan being a maximum of 2 years, if you cannot sell your current property within the planned time frame, you will be forced to lower its price to sell it before the loan's expiration date. If you cannot sell your property before the loan's expiration date, or if you sell it at a price lower than the borrowed amount (which normally already gives you a margin of maneuver), your loan will be converted into a 'classic' real estate loan if you are unable to repay it in full. The consequences can then prove to be financially heavy. Some banks may, however, offer an extension of up to 1 year. Let's also mention that the interest rate of a bridge loan is necessarily a fixed rate.

In short

The bridge loan is a very practical solution to bridge the gap between obtaining capital from the sale of your current property and the purchase of your new property. It offers security to the borrower if the sale of his real estate does not take place as quickly as he hopes. However, given its short maximum duration and repayment terms, it is especially recommended if your sales project is already well underway.