Repsol YPF

If you are thinking of moving house, and you have seen one that you like but you need to sell that which you currently own in order to buy it, you can take out a bridging loan, a financial product available at all banks and savings banks, through which the bank offers a mortgage that can reach up to 100% of the value of the new property. 

It is not a well-known product since banks don’t usually promote it due to the associated risks. On the one hand, they have to wait until the old flat is sold, and on the other, it implies a certain amount of speculation, since some applicants use it to get a better price for the sale of their property during the period that the bank gives them to sell it. 

If you decide to take out a bridging mortgage, you should speak to several banks and saving banks, since some contracts contain unfair terms, mainly related to the interest and commission paid to the bank. The most common example is that the interests are higher than those for a traditional mortgage, a percentage justified by the greater risk assumed by the bank, but in the opinion of most of the mortgage consultants, this should not exceed 8%. 

How it works

If you take out a bridging loan in order to move house, they work differently depending on the bank you choose. If you have a mortgage on your old flat, you can stop paying the repayments and just pay back the new loan. Once you have sold your old flat, a transaction for which you have a set time limit of between one and five years (be sure to clarify this period with the bank), you will pay off the debt associated to your first mortgage and can convert the bridging mortgage into a traditional mortgage.

If your old flat is paid for, you can opt for a personal loan or a mortgage. In the former case, you would guarantee the loan using both properties, and once you sold the old house, you could modify the loan conditions by repaying the sum obtained from the sale. In the latter case, you would take out a mortgage on the former property, and once it is sold within the established time frame, the agreement is restructured and a new mortgage is agreed for the new property. 

You can also mortgage both properties. In this case, a valuation will be made of the new property first, which may be as much as 100%, so long as you specify on the deed that you will partially cancel the debt with the money obtained from the sale of the old flat. Then you will agree a mortgage on the old property. In this case, the loan is usually calculated on 80% of the valuation. With the credit obtained from mortgaging the old property, you can pay the costs for purchasing the new flat (deeds, taxes, removal costs, alterations, etc.). 

The choice of one method over another depends on your financial situation. The most advisable thing to do is that once you have sold your old property, you have just one traditional monthly mortgage repayment, associated to the new property. Bear in mind that you can sell your old flat at the best price, since the advantage of the bridging loan is that the bank allows you to carry out this transaction in your own time. 

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