Real estate loan: definition and condition
The best definition of the bridge loan is to equate it with a cash advance granted by the bank on the future sale of housing.
It therefore applies to owners of real estate (primary, secondary or rental residence) to enable them to acquire a new residence without waiting for the sale of the old one to be effective.
This advance is often granted for a maximum of two years.
There are different ways to calculate the amount of the bridge loan depending on the bank you are talking to, but the basic principle remains the same.
The bridge loan will contribute up to the advance granted by the bank, in addition to the principal repayable loan and various complementary loans such as the PTZ plus.
Condition of interest payment
The principle of repayment is identical to that of a loan in fine, that is to say that you repay only the interest, until the actual sale of the home.
The case of the total franchise
Some banks grant a total deductible interest. So you have nothing to pay until the sale is effective.
Conditions of acceptance
In addition to not exceeding the maximum debt ratio, the bank will require that you provide evidence that the housing is actually put on sale. For this, you will have to produce the signed sales mandates with real estate agencies.
Calculation of the loan amount
There are several formulas for determining the amount of the bridge loan, each bank having its own rules of calculation. The objective is to limit the amount granted in the event of a reversal of the real estate market.
This elementary prudence rule thus protects the borrower from disappointment in the event of a sale below the expected price.
To determine the amount of the advance, the bank applies a percentage, usually limited to 70%:
- Either the balance returned to the borrower (after payment of the outstanding capital)
- That is the value of the good.
Depending on the technique used, the result will not be the same.
Let’s take a simple example of a dwelling whose sale price is fixed at 250 000 €, for which the outstanding capital of the mortgage loan amounts to 100 000 €. We will apply for each of the formulas a limit rate of 70%.
Application of the rate on the balance to the borrower.
The first formula of calculation is to apply directly the maximum rate granted by the bank on the amount which will return in the end to the borrower.
- Formula : [Selling price of the dwelling] – [outstanding capital] * 70%
- Result obtained : [250 000 €] – [100 000 €] * 70% = 105 000 €
Application of the maximum rate on the price of housing:
Formula : [(Value of housing * 70%)] – [Remaining capital]
Result obtained : [250 000 € * 70%] – [100 000 €] = 75 000 €
The first method of calculating relay loan is more generous than the second. However, if you are in the process of concluding the negotiation of the property and you have signed a sales agreement, the bank will be able to rely on the actual selling price, provided that the conditions of the sale are certain, that is, to say :
- On the one hand, the compromise withdrawal period has expired
- On the other hand, that your buyer has obtained his loan.
The term of the loan relay
The term comes either when the sale is made, or after two years if you have not sold.
What if the property is not sold?
If you do not find a buyer after two years, you will have to try to negotiate an extension of the term with your bank. The renewal period is of the order of 6 months, usually up to one year. At the end of this new period, if the property is still not sold, it will probably be necessary to provide a more radical solution that could be:
- The sale of new housing acquired
- The application of a sharp decline in the property for sale in order to accelerate the sale
Conversion of the bridge loan into a repayable loan