What is a bridge loan?
By definition, a bridge loan is a real estate loan intended for a relatively short time period – typically ranging from six months to three years. Its name is derived from its function: it literally bridges a gap in financing, whatever the reason. Traditional commercial real estate loans funded by institutional lenders such as banks or life insurance company are typically long-term loans, lasting between 5 and 30 years. Bridge loans are financed by private capital and hard money lenders. As such, they usually have higher interest rates and loan fees, but these costs are offset by the speed at which they can be obtained. As a Denver, Colorado-based hard money lender, Montegra is able to underwrite bridge loans for local borrowers in a timely manner.
Why do borrowers use bridge loans? Here are the most frequent reasons:
- Can close quickly if borrower doesn’t have the time to arrange for a bank loan (or if another loan has fallen through at the last minute).
- Can save a property from foreclosure.
- Can buy a property that is not fully leased (or even one that is empty) to give the borrower time to lease it up so that the debt service coverage will meet a bank’s requirements.
- Can purchase land and hold it until construction loan financing is obtained.
- Can refinance a property to get cash out when banks are unwilling to do so.
What are the differences between bridge loan interest rates and terms and those of standard traditional real estate loans?
As of spring 2013, banks and institutional lenders are funding loans at the lowest interest rates in a generation. Bridge loans carry higher interest rates – typically ranging anywhere from 9% up to as high as 15% – with loan fees usually set between 2% and 5%. While bridge loans generally do not exceed a 65% loan-to-value (LTV) rate, bank loans may be funded as high as an 85% LTV rate. Additionally, some bridge lenders require an equity participation in the real estate project, but most do not.
Montegra funds Colorado bridge loans.
All of the loan types offered by Montegra – whether they are secured by commercial properties or investment-purpose residential properties – are short-term, one- to three-year loans. Montegra’s interest rates range from 9.5% to 11% with loan fees set between 2% and 4%. Our loans are paid “interest only”. This means they do not amortize helping to minimize monthly payments. To counter the higher interest rates, Montegra offers flexible lending terms that fit each borrower’s needs. Montegra also delivers quick closings, between three to four weeks from initial request to closing – and is able to fund loans even if they have been rejected by institutional lenders – because debt service coverage is not up to bank standards or other issues have disqualified the application.
For more information, contact us today at 303-377-4181.