Bridging Finance the Lifetime Mortgage
Bridging finance, also known as lifetime mortgage, is a loan available to borrower older than 60 years and fully own the home. It allows the home owner (borrower) to borrow cash against the home equity in the property by multiple payments, or simply one lump-sum amount.
In conventional bridging finance, the borrower makes amortized payment to lender on a monthly basis; as a result, the equity increases within borrower’s property after each payment. Typically, the mortgage will be paid in full at the end of term and the property will be released from lender.
Contrarily, in a bridging finance, there is no payments made by borrower and all fees and interest which would be ordinarily paid is added to the lien on the property. If the borrower receives a bulk payment, or monthly payments from lender, then the debt on property increases each month accordingly. Over time, borrower of bridging finance is charged with compound interest and that builds up the total amount owing.
A property may have increased in value compared with the value when a bridging finance is taken out; then it is possible to acquire another bridging finance over the increased amount of equity, depending on the contract and certain regulation. Furthermore, in the most case, a bridging finance must be the only mortgage on property.
As discussed before, bridging finance the loan ends when the borrower sells the property, moves out for more than a specific period or dies. At that point, the bridging finance can be paid off by the sale of house, or if the borrower has died, the property can be refinanced by the heirs with a regular mortgage. If the proceeds exceed the total loan amount, the owner or the heirs will receive the difference, and mortgage debt increases over time
How about the amount of the loan increasing to a point where it is more than the value of property before or in the proceeds? This is called 'negative equity'. Due to all this, it is possible to end up owing money more than house value over time. With a No Negative Equity Guarantee (NNEG) in some, but not all, bridging finance products, the borrower will be protected and not liable to repay the extra amount. In the case where the proceeds are not sufficient, then the lender absorbs the difference.
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