Relay Ready: how does it work?

Relay Ready: how does it work?
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The loan amount

The amount of the bridge loan is calculated according to a main criterion: the price of the property you are selling. The bank grants a bridge loan in general on the basis of 70% of the value of the property for sale. The bank does not lend on the basis of the total value of the property put on sale because, if you could not sell your property at the price you want it leaves you a margin of negotiation with your buyer for both to be able to achieve in negotiating the sale of your property and repay the entire principal amount of the bridge loan.

The duration of the loan

The bridge loan is generally granted for a period of 24 months. Some banks offer a 1-year contract renewable once. In the best of cases, some banks may agree to an extension of a case but this is never written in the 
contracts and this extension is studied on a case by case basis.

Senioritis offers a 36-month bridge loan which is probably the only bridging loan available for this term currently available on the market.

Monthly payment of the bridge credit

The bridge loan is an “In Fine” type of financing, ie the bank advances the capital and recovers it either on the sale of the property or at the end of the loan. The borrower only pays the borrowing interest for the duration of the financing. 
Some banks propose that the interest is also refunded at the end of the credit but this solution is more expensive than the monthly payment of interest because they are capitalized *.

* capitalize interest is to reinstate the interest advanced to the borrowed capital and thus recalculate the cost of interest due on the basis of capital + advanced interest.

The rate of a bridge loan

In France, we have a system that limits the maximum rate a bank can charge for a given type of credit. The maximum rate allowed is called the wear rate. For the bridge loan , the rate of wear is that applied for real estate loans. The wear rate in effect in July 2016 is 4.03%. Attention, this rate includes all the costs related to the credit (expenses of files, expenses of intermediation, insurance if it is obligatory) except the expenses of guarantee.

According to the figures provided by the Banque de France, the average effective rate practiced by banks in the first half of 2016 is 3.02%.

The associated relay credit (or backing)

It often happens that the price of the good bought is greater than the price of the good that one wishes to sell. It is then possible to associate the bridge loan with a conventional long-term home loan . The bank then offers you to pay the monthly installments of the long-term loan and can put in place a deferred payment of interest on the bridge loan until the sale of your property. At the sale of your property, your bridge loan is sold and you can, if necessary proceed to a partial refund of your long-term loan. If you make a partial repayment of your long-term credit, the bank will establish a new amortization schedule based on the principal you will still have to repay.

The dry relay credit

As opposed to the associated bridge loan, the dry relay loan is the only credit in your financing plan for the purchase of your property. The dry relay loan is a simple cash advance allowing you to finance your purchase. You can opt for interest payments monthly, sometimes annually, or ask your bank for a “total deferral of repayment”. In this case, the interest is “capitalized” and is due to the bank only on the day of the sale of your property. Be careful, however, the latter solution is more expensive than the monthly payment of interest.

The risk of the bridge loan

The main risk of the bridge loan and not having sold his property at the end of the loan. The bank generally does not accept an extension of this type of financing or only on a case-by-case basis.

The extension of a bridge loan is never written on the contracts. It is negotiated with the lending bank. If you do not find an agreement with your bank, it can then declare the “lapse of the term of your credit”, that is to say the statement that you have not honored the repayment of the loan agreement. She can then register to the personal credit repayment incidents file (FICP) and start a procedure for entering your property.

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