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Bridging Finance
Buying a new house in South Africa or just looking
for a better home loan or
mortgage rate.
Bridging Finance and how does it work?
Bridging finance is a short term micro loan that is secured against a future income and is widely used in property transactions to overcome the obstacles presented by time delays.
And, time delays are inevitable.
Under normal circumstances, when you sell your home, you will have to wait for transfer to take place before you are granted access to the proceeds of the sale. In the mean time, there could be some hefty bills for you to foot. The deposit on your new home, transfer fees, duties, conveyance attorneys’ charges and estate agent commissions, immediately come to mind. The problem with these types of expenses is that, in the majority of cases, they cannot be deferred for three months: they simply have to be paid now.
Second mortgages could place you in a similar quandary. For instance, you may need to pay for urgent, expensive repairs that cannot be delayed until registration or you may even be required to put down a deposit in order to avail yourself of a ‘winter special’ offered by a local swimming pool contractor.
In both these cases, bridging finance could prove to be of immense value.
How much bridging finance will I qualify for?
Lenders usually base their calculations on a percentage (typically 80%) of the net future amount due to you.
Example:
If you need bridging finance while waiting for your property to be transferred, the bridging finance company will calculate the maximum loan you qualify for, as follows:
Selling Price of your house : R 500,000
Amount owed on bond : R 400,000
Difference : R 100,000
Max. Bridging Finance % : 80%
Max. Bridging Finance amount : R 100,000 x 80% = R 80,000
In other words, you will be able to borrow R 80,000 against the proceeds of the sale of your home.
How much does bridging finance cost?
The interest rates applied to bridging finance products are higher than most types of personal loans. The main reasons for this are that bridging finance loans are extended for a short term only and that the money is made available to you nearly immediately (within 12 to 24 hours from application).
The interest is calculated on a daily basis, and could be anything from R 1.00 per R 1,000 per day upwards.
Example:
Bridging Finance Loan Amount : R 80,000
Daily Interest rate : R 1.00 per day per R 1,000
Actual Daily interest payable : R 80.00
If your loan is for a period of 30 days, you will end up paying a total of R 2,400 interest on the R 80,000 you borrowed.
What do I need to apply for bridging finance?
Applying for bridging finance is a quick and easy, and can be done on-line. After completing the application form, you will be required to provide supporting documentation by fax. These could include:
1.Identity Document
2.Proof of Address, such as a Utility Bill
3.Proof of Income
4.Three months’ bank statements
5.Mortgage statement
6.Copy of the signed Offer to Purchase
7.Valuation Certificate
8.Information on all your existing liabilities, such as retail accounts, credit cards, school fees etc.
9.Letter of confirmation from the bank, in the case of a 2nd mortgage.
Am I protected against unfair practices?
In addition to compliance with the Usury Act, most reputable Bridging Finance providers are also registered with the BFISA (Bridging Finance Association of South Africa). By becoming a member of the BFISA, bridging finance providers agree to:
Prescribed practice rules
Truth in advertising
Ethical Conduct
Regulatory compliance
Professionalism
Honour consumer privacy
Consumer data protection
The details of the BFISA and their members are available on the BFISA website (www.bfisa.org.za).
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