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Facts You Wanted To Know About Caveat Loans
But Were Afraid To Ask

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Suppose you are a business owner or a property investor who needs fast and flexible funding. In that case, you might have heard of caveat loans. But what are they exactly, and how do they work? In this article, we will explain the basics of caveat loans, their benefits and drawbacks, and some common scenarios where they can be helpful. We will also compare them with another type of short-term loan, a bridging loan, and highlight their main differences.

Fact #1: A caveat loan is a short-term, secured loan.

A caveat loan is a type of short-term loan that is secured by a property. A caveat is a legal document lodged on the property’s title, preventing it from being sold or used as collateral for another loan until the caveat loan is repaid. The caveat loan refers to the funds received by the borrower, usually for business or investment purposes.

Fact #2: A caveat loan differs significantly from a regular mortgage.

A caveat loan is different from a regular mortgage in several ways. First, a caveat loan can be approved and settled much faster, often within 24 to 48 hours of application. This is because minimal paperwork and credit checks are involved, as the loan is based on the property’s equity. Second, a caveat loan is shorter, typically one month to three years. Third, a caveat loan has a higher interest rate than a mortgage, reflecting the higher risk and convenience for the borrower.

Fact #3: A caveat loan is designed for business.

A caveat loan can be an excellent option for businesses or investors who need quick and easy access to funds. Some of the benefits of a caveat loan are:

  • Caveat loans are fast: You can get the funds you need within days, or even hours, of applying. This can help you take advantage of business opportunities, manage cash flow gaps, or deal with urgent expenses.
  • Caveat loans are flexible: You can negotiate the terms of your caveat loan with your lender, such as the amount, duration, repayment schedule, and interest rate. You can also choose to pay interest only or capitalise the claim until the end of the loan term.
  • Caveat loans are based on equity: You can borrow up to 100% of the value of your property, depending on your lender and situation. You don’t need to provide any financial statements, tax returns, or credit history to qualify for a caveat loan.
  • Caveat loans are easy to release: Once you repay your caveat loan, the caveat on your property title is lifted automatically. You can then sell your property or use it for another loan.

Fact #4: Caveat loans are not risk-free.

It is essential to understand that a caveat loan has risks and costs. Before considering caveat loans, one must understand the following drawbacks :

  • Caveat loans are expensive: You will pay a higher interest rate than a regular mortgage, as well as fees and charges for setting up and releasing the caveat. The longer you keep the caveat loan, the more interest you will accrue.
  • Caveat loans are risky: You must repay your caveat loan on time to remove the notice on your title. If you default on your loan, the lender can block any future transactions you may have with your property until the loan is fully repaid.
  • Caveat loans are restrictive: While you have a caveat on your property title, you cannot sell your property or use it for another loan. You can only refinance your existing mortgage or access equity in your property with the knowledge and approval of the lender.

Fact #5: Caveat loans act like bridging loans but are not the same product.

Caveat loans are often compared to a loan product known as a bridging loan because of how the funds can be used – to bridge a gap in funding for business or personal reasons. 

The similarities, however, end there.

A bridging loan is another short-term loan used to bridge the gap between buying and selling properties. For example, if you have found your dream home but have yet to deal with your current one, you can use a bridging loan to secure the purchase while waiting for your sale to settle.

A bridging loan is similar to a caveat loan in some ways but also different in others. Here are some of the main differences between them:

  • A bridging loan requires two properties: To qualify for a bridging loan, you need to have two properties: one that you are buying and one that you are selling. The bridging loan is secured by both properties until you sell your old one and repay the loan. A caveat loan only requires one property: the one that you own and use as security for the loan.
  • A bridging loan has lower interest rates: Because a bridging loan is secured by two properties, it has lower interest rates than a caveat loan. However, you will still pay more interest than a regular mortgage because of the short-term nature of the loan.
  • A bridging loan has a longer duration: It usually lasts six months to one year, depending on how long it takes to sell your old property. A caveat loan has a shorter term, usually one month to three years.
  • A bridging loan has more paperwork: To apply for a bridging loan, you must provide more documentation and evidence than a caveat loan. You need proof of income, credit history, valuation reports, and sale and purchase contracts for both properties.

Fact #6: Equity is more important than credit score.

Caveat loans also differ from traditional mortgages, which require credit checks and proof of income. Caveat loans are based on the equity available in the property and can be approved within 24 hours or less.

To apply for a caveat loan, a borrower needs to have equity in a property that can be used as collateral. The equity is the difference between the market value of the property and the amount owed on any existing mortgages or loans secured by the property. The more equity borrowers have, the more they can borrow with a caveat loan. However, equity also determines the risk for both the borrower and the lender. If the borrower has low equity, they may need more money to be able to borrow enough to meet their needs, or they may have to pay higher interest rates to compensate for the higher risk. If the borrower has high equity, they may be able to borrow more at lower interest rates. Still, they risk losing more property value if they default on the loan. The property can be residential, commercial, or vacant land, and it can be located in metropolitan, regional, or rural areas. However, the property’s value, type, and location may affect the amount and availability of funding. The borrower must also provide a valid reason for needing the loan and a clear exit strategy for repaying it. The lender will then assess the application and conduct a property valuation. If approved, the lender will lodge a caveat on the property’s title deed and transfer the funds to the borrower’s account within 24 hours or less.

Fact #7: Always consider all facts before getting a caveat loan.

In light of these facts, you must always weigh the pros and cons of caveat loans before embarking on this financing option. While caveat loans can be a potent tool for managing cash flow and seizing opportunities amidst rising interest rates and inflation, they also come with substantial responsibilities and risks that require careful consideration.

At Tiger Finance, we always guide you every step of the way with loan experts well-versed in the current situation in the world of financing. You can avail of a free consultation with our in-house financing expert without obligation to give you the most accurate picture of your loan situation today.

Contact Tiger Finance today so that we can help you begin your journey to secure the exact hassle-free loan product that you need.

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