Bridge loans can help make real estate transitions easier

A bridge loan is a short-term financing tool that helps you “bridge” the gap between old and new mortgages when you move from one home to another.  You may be taking possession of your new home a week or two in advance of closing on your current home, either because of how your closing dates worked out, or because you want to do some renovating on your new home before you move in. Whatever the reason, bridge financing is going to be your best friend for a few weeks: making it possible to easily transition from the old to the new.

High level details:

Specific Amount

A bridge loan is for a specific amount, which is your home’s selling price minus your current mortgage and costs (realtor and legal fees, mortgage payout penalties if applicable).

Short Term

The bridge financing is for a short period of time – typically a 1 – 45 days – and the lender will want to see a firm sale agreement for your existing place, with conditions waived.

Not offered everywhere

Not all lenders offer bridge loans, so if you know your purchase and sale dates don’t line up, check to make sure your lender does offer bridge financing.  Private lenders can be an option to use if you can’t get your lender to do it for you. If you’re working with a mortgage broker, you’re in good hands.  We can put together a combination of a new mortgage and bridge loan even if it’s not with the same lender.

Expect to pay a bit more

Your bridge financing is going to be at a higher rate than your mortgage, and will include administration fees, even when the bridge loan is with the same lender. Bridge loans from private lenders will likely have higher rates and fees, although they may offer more flexible terms. For most homebuyers, the convenience is worth it.

Plan in advance just in case

As you know from reading my blog, I’m a big believer in mortgage planning.  Together we’ll discuss your ability to carry two mortgages in the event that a rare worst-case scenario plays out. Your lawyer will pay out your bridge loan from the sale proceeds of your home. If for any reason the sale falls through, your lawyer will register the bridge loan as a charge on the property. And if you require a longer bridge time frame – more than 30 days, or for an amount over the lender’s maximum, your lender may register a charge against the property and your costs will increase.

Most people say a bridge was well worth it to buy some extra time for a smooth transition.  For a more detailed breakdown of bridge financing – with some real life numbers – click here for my bridge financing post.  Or to see how it would relate to your own specific situation, don’t hesitate to get in touch with me directly.

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