What is Bridge Financing?

Posted on 25 April, 2019

There are many changes that can happen throughout your life as a homeowner, and sometimes that means your current home is no longer meeting your needs. Perhaps you are looking to move into your forever home, or your kids are grown and you want to downsize. Whatever the case may be, using the equity in your home as a down payment for a new home is a situation we run into often within our industry. When there is a gap between the closing date for your new home and the closing date for your current home, bridge financing can help.

What is Bridge Financing?

Finding your dream home before the sale of your current home can mean that you won’t be able to access the equity in your current home to use as a down payment. This is where bridge financing comes in.

Bridge financing is a short-term loan provided to you by a mortgage lender that helps “bridge” the gap between the closing dates for both properties. It is repaid to the lender when the funds from selling your current home become available.

How does Bridge Financing Work?

Because this situation is so common, most of Canada’s big banks do offer bridge financing - however, not all of them do. It’s important to talk to your Broker beforehand so they can help find a lender that matches your needs.

As an example, let’s say the closing date for the home you are selling is 45 days from now, and the closing date for your new home is just 30 days from now. A bridge loan will cover the financing for that 15 day gap, but you need to have a firm sale on your current home before you can proceed. You typically need to provide the sale agreement from your current home as well as the purchase agreement for your new home to your lender.

Like most loans, your bridge loan will be subject to interest and your rate will usually be similar to what is currently being offered on the market for an open mortgage term. Your Broker can help you calculate how much interest you would be looking at paying in order to access bridge financing.

If you are looking at using the equity in your home as a down payment for a new property and are unsure of how to proceed, we can help! Our free consultations can give you a better of your options moving forward.

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