What is the difference between an open and a closed bridge loan?
An open bridge loan may have a prepayment penalty affixed, which may sway the borrower from paying it off too early. However, a closed bridge loan will have not only a prepayment penalty, but a closed transaction cost as well. A prepayment penalty can vary from a cost of six months worth of intended interest payments to a total percentage of the loan amount, which may vary between 3% to 5%. A closed transaction fee is much more severe. In the case of a borrower breaking the term of closed bridge loan, the borrower must then pay the full amount of future intended payments the lender was entitled to receive for the agreed upon time frame of the loan.
