Financial Bridges

Bridge loans are designed to meet needs for the interim period, between sale of an existing house and purchase of a new one.

Apart from offering regular new housing loans, financial institutions offer the facility of bridge loans too.

The interest rates for bridge loans are higher than the normal long-term loans since the duration of bridge loans are shorter.

Home bridge loans are specially designed to meet such requirements for the interim period between sale of the existing house and purchase of a new one. The HFI will lend approximately 80 per cent of the value of the new property.

The compulsion of arranging the immediate substantial payment to the builder was the deciding factor for the choice of loan. And the couple opted for a bridge loan from a housing finance institution.

This is useful when you do not want to take a long-term home loan. It gives you enough time to sell your existing property and make payment for the new house and also pay off the loan quickly.

How to go about it

The loan will be sanctioned only upon entering into a formal sale agreement with the builder of the new house. The documentation process will be similar to that of taking a loan on a new house/flat but the duration of the loan will have to be defined, which usually will be for a period of two years. The interest rates for these types of loans are higher than the normal long-term loans since the duration of bridge loans are shorter.

No Penalty on Pre-Closure

The Reserve Bank of India (RBI) has directed all nationalised banks not to impose penalty  for pre-closure of housing loans. The notification issued by the RBI has brought some smile of middle class families who now have the opportunity to shift their costly and high interest loans to other banks, particularly HUCO, a public sector entity.

RBI strictly disallowed banks from charging foreclosure charges / pre-payment penalties on
home loans on floating interest rate basis. “The removal of foreclosure charges/prepayment
penalty on home loans will lead to reduction in the discrimination between existing and new
borrowers and competition among banks will result in finer pricing of the floating rate home
loans,” RBI said in a notification to banks. Though many banks have, in the recent past,
voluntarily abolished pre-payment penalties on floating rate home loans, “there is a need to
ensure uniformity across the banking system,” an official said.

We also advise you to apply for housing loans in the public sector banks. Banks like HUDCO
offers loans at 10 per cent rate of interest up to Rs 26 lakh. Moreover, public sector banks
charge less consultancy fee than private banks in the country. But seek suggestions from
financial experts before obtaining loans either housing or any other loan.

One has to think ten times while fixing the size of the house loan. Larger the size of the loan,
more interest rate burden as well more monthly repayment. Like size of a house required
differs from one family to other, the amount of loan is also differs from one to other family.
Therefore, before buying property, it is advisable to appoint a solicitor to inspect the original
title documents of the property being purchased and later apply for housing loan.