What is an “Exit Strategy” and Why is it Important?
An exit strategy is the plan borrowers have in place to pay off the bridge loan when the note becomes due. Arrival Home Loans bridge loans become due in 11 months and have no pre-payment penalties. However, most are paid off on average within 6 months or sooner.
Bridge loans are not designed to be long-term loans, but rather a short-term solution to a pressing challenge. Due to the short-term nature of bridge loans, all parties are keen to ensure that the loan can be repaid in full and on time. Arrival Home Loans mortgage professionals will help ensure a successful exit strategy is in place before funding a bridge loan.
Common Types of Exit Strategies:
- The sale of the departure residence (the home the borrower still currently owns and plans to sell shortly): This is one of the most common exit strategies.
- The refinance of the new home into a longer-term mortgage: This is also a very common exit strategy that is used many times in conjunction with the sale of the borrower’s existing residence.
- The sale of other investments or assets: Some borrowers just need a little time to sell other investments/assets that may not be quickly liquid to pay off the bridge loan.
- The sale of a secondary or investment property: Arrival Home Loans can cross-collateralize the new purchase with a second home or investment property owned by the borrower that may be subsequently sold to repay the bridge loan.
- Inheritance: Borrowers who may be coming into money in the near future may use expected inheritance funds as an exit strategy.
The sale of the newly purchased property: Although this is the least common of the exit strategies, borrowers may resell the property recently purchased as an exit strategy. Keep in mind that these bridge loans are only to be used for primary residence purchases and cannot be used for investment opportunities.