Bridge Financing Explained
A bridge loan or bridge financing can be available for clients as a way to “bridge” the gap between 2 mortgages when your closing dates are not the same when you buy and sell. 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.
Here are 6 key points about Bridge Financing:
Bridge Loans are provided for a specific amount, which is your home’s selling price minus your current mortgage and costs (realtor/legal). Different lenders have different guidelines on what can be included in a bridge loan.
There is a time limit on how long you can bridge for, this is typically 1 to 30 days.
You must have a firm sold agreement with no conditions Yon your property in order to bridge from it to the property you purchased. You also need to ensure that the people that are on each purchase and sale agreement are the same.
Not all lenders offer bridge loans, although there are private lenders that meet this need. Since you are working with a Mortgage Broker, you are in good hands: I can put together a combination of a new mortgage and bridge loan even if it’s not with the same lender.
Expect to pay more. Your bridge 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. If the bridge is for a large amount or more risky for the lender you will also have to have an extra visit to the lawyer and typically higher lawyer costs.
Plan in advance just in case. 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 i.e over 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.
