How to Extend a Bridging Loan: A Guide

By Georgia Galloway | Wednesday 6th September 2023 | 4 minute read

Navigating the complexities of short-term finance can be challenging, especially when unexpected circumstances necessitate an extension on your bridging loan.

But what do you do if you need a longer timescale to repay? And how do you go about extending a bridging loan? Our guide will walk you through the basics.

Two people share a handshake in an office over a table with paperwork showing financial graphs and charts

The Basics of Bridging Loans

A bridging loan, aptly named for its purpose, acts as a financial bridge. These loans are often the go-to solution for property investors and developers who require immediate funding. This could facilitate the acquisition of another property before an existing one is sold or even finance renovation projects. While there are benefits to bridging loans, before you decide whether a bridging loan is a good idea for your circumstances, it's important that you understand the implications of this type of short-term finance.

One standout feature that attracts people to bridging loans is their flexibility in terms of duration. The term length can vary greatly depending on both lender and borrower circumstances, ranging from several weeks to months.

Extending Your Bridging Loan Term

The bridging loan term is typically short, from 1 to 24 months. However, unforeseen circumstances, such as delays in property sales or renovations, may require an extension of this period. A bridging loan's flexibility can be particularly beneficial during these times.

Not all lenders will provide the option of extending a bridging loan, and those who do may have distinct approval criteria.

What Happens If You Go Over Your Loan Term

Understanding the consequences becomes crucial if you exceed the agreed-upon bridging loan term due to unexpected hitches or project delays. Some lenders may allow loan extensions, while others may impose penalties for exceeding the set timeframe.

Potential consequences include higher interest rates, reflecting the increased risk perceived by traditional lenders, and even repossession proceedings if the borrower's repayments deviate from the initial agreement. 

Understanding why you have gone over the term can help devise alternative exit strategies. This is especially important when dealing with potential impacts on credit scores caused by late payments or defaults recorded by credit reference agencies, which can negatively affect your future borrowing abilities.

Can I repay my bridging loan early?

Yes. There are typically no additional charges if you repay your bridging loan early, though it is important to check the conditions of your loan agreement with your lender before doing so.

Can You Refinance Your Existing Bridging Loan?

Refinancing might be your lifeline if your bridging loan repayments are challenging or selling your property takes longer than anticipated. This decision could impact your financial situation significantly and mustn't be taken lightly.

The concept of refinancing revolves around securing a new loan to clear off an existing one. It can offer lower interest rates or extended repayment terms, giving borrowers breathing space in their finances. Still, it's essential to know that these advantages usually come with extra charges, such as arrangement fees and legal costs.

In some cases, refinancing may provide extra funds for further development work on the property - but caution should always prevail: borrowing more increases both the amount owed and potential risk if circumstances change negatively.

Re-bridging Facilities Available

A re-bridging loan presents another option for extending or paying back an existing bridging loan term. These facilities involve replacing one bridge loan with another from the same lender or a different provider.

This approach comes with several advantages, including potentially better interest rates if market conditions have improved since obtaining the original financing agreement; it also provides flexibility for those who've made significant progress on their project but require additional time before sale completion or refinance onto traditional lenders' long-term finance like mortgages. 

However, there are drawbacks too - primarily cost-related as each transaction incurs its own set of fees, which must be factored into any decisions about feasibility.

Before proceeding, whether via conventional methods of extending your bridge loan term through refinancing options, thorough research must be conducted, ensuring all implications - positive and negative - are fully understood beforehand so the borrower's ability isn't compromised unnecessarily.

The Difference Between Open and Closed Bridging Loans

Understanding the difference between open and closed options is crucial. These two types of loans offer different levels of flexibility and risk, which can significantly impact borrowers' ability to manage their finances effectively.

What is an Open Bridging Loan?

An open bridging loan does not have a set repayment date. This bridging loan offers flexibility in terms of repayments, as there isn't a concrete repayment date tied to the agreement. However, this lack of deadline might lead some borrowers into complacency regarding their repayments, working towards higher interest rates over time due to longer loan durations. Furthermore, an open bridging loan won't necessarily require you to demonstrate how you intend to repay the amount owed at the end.

Closed Bridging Loans Explained

A closed bridging loan has a fixed term that both parties agree upon upfront - usually when there's already an exit strategy in place, such as selling another property or refinancing through traditional lenders. The certainty provided by having this set repayment date typically results in lower interest rates compared with those seen within open bridge loans.

Exploring Potential Options When Going Over Term

The term of a bridging loan is often seen as inflexible, but options are available if you exceed the agreed duration. The two main routes to consider involve staying with your current lender or seeking an alternative facility.

Negotiating With Your Current Lender

Suppose you have an established relationship with your existing lender, and they are willing to negotiate. In that case, it may be possible to alter the loan's term or repayment plan, which could result in increased costs due to extra interest and fees. This could involve extending the loan term or adjusting the repayment structure. It's worth noting that this may mean more expensive costs due to extra interest and charges.

However, there are advantages to staying with your current lender - familiarity can provide comfort during uncertain times like these. There will be no need for another property valuation or legal process when switching lenders.

Moving To An Alternative Facility

In certain situations where flexibility is vital, moving to an alternative financing option could offer better conditions than renegotiating with your current provider, especially if market dynamics have changed since securing the initial closed bridging loan.

Before deciding on this route, you must carefully evaluate factors such as application timelines and exit penalties while also considering the arrangement fees associated with most traditional lenders' offers.

We're experienced financial experts who arrange short-term bridging loans for property owners, securing you the best deal from over 200 bridging loan providers, including private investors and family offices.

Get expert assistance today; we're on hand to answer any questions about bridging loans.

Get a quote

Call our friendly team on 01202 612934, we're ready to help.

How to Extend a Bridging Loan FAQs

Can you get an extension on a bridging loan?

Yes, it's possible to extend a bridging loan. However, the decision is at the lender's discretion and depends on your circumstances.

How long can a bridging loan last?

A typical term for regulated bridging loans is 12 months, but unregulated providers may offer up to 24 months or more in some cases.

Can I remortgage a bridging loan?

Yes, it's an option to remortgage to pay off the initial bridge finance for the property.

We use cookies. By using the website you agree with our use of cookies. For more information, please read our privacy policy.

Okay, got it!