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A bridge loan is a short-term mortgage designed to provide immediate funds to cover the gap between the purchase of a new property and the sale of your existing home. It’s typically used in situations where timing constraints prevent the buyer from closing on a new home before selling their current one. The loan "bridges" the financial gap, allowing you to secure your new home before the sale of your current property is finalized.
Home Sale Pending: If your home sale has been delayed or hasn’t closed yet, a bridge loan can provide the necessary funds to secure the new home.
Simultaneous Closings: If you're facing tight deadlines and your existing property is about to sell but the buyer’s financing is delayed, a bridge loan can cover the costs in the meantime.
Fast-Paced Real Estate Market: In competitive housing markets, bridge loans help buyers act quickly without waiting for the sale of their existing property.
Bridge loans are typically repaid within 6 months to a year, with interest rates that are usually higher than traditional mortgage loans. These loans are ideal when you need to close on a new home but have yet to sell your current home. The loan is secured against the equity in your current property, with the expectation that the home will sell soon, allowing you to pay off the bridge loan once your existing property is sold.
While bridge loans provide immediate solutions, they also come with specific eligibility criteria that differ from traditional mortgages. In Canada, common requirements include:
Equity in Your Current Property: The most important factor in securing a bridge loan is the equity in your current home. Lenders will require that your existing property has enough value to secure the loan.
Proof of Sale Agreement: Lenders typically require documentation showing that your current home is under contract for sale, or proof of a sale agreement in progress.
Good Credit History: A strong credit score is important, though not always as strict as for traditional mortgages. Lenders will look at your financial standing to assess the risk involved.
Income Verification: Like any loan, proof of income and financial stability will be reviewed to ensure you can repay the loan.
It is our job to get your lowest possible rate. Your rate qualification depends on certain factors, such as credit score and home equity as per regulations.
*Advertised rates may not be offered by this lender. Mortgage lender offers are aggregated by RateShop & its Brokerage Network subject to change without notice. Speak with our mortgage broker about APR and qualification requirements.
The equity in your current property is the key factor influencing bridge loan approval. Lenders typically offer loans of up to 80% of the appraised value of your home. The more equity you have in your property, the larger the bridge loan you can secure.
For example, if your current home is worth $500,000 and you owe $300,000 on your mortgage, the equity available for a bridge loan is $200,000. This is the amount you can borrow to cover the gap until the sale of your home is finalized. Lenders will assess this equity to determine the loan amount and approval process.
Bridge loans often come with higher interest rates than traditional mortgages, typically ranging from 6% to 10%, depending on the lender and the specific circumstances. This is because bridge loans are considered higher risk due to their short-term nature and reliance on the sale of your current property.
Key differences:
Interest Rates: Higher for bridge loans than traditional long-term mortgages.
Fees: Bridge loans can come with various fees, such as application fees, appraisal fees, and early repayment penalties.
Repayment Terms: Typically, bridge loans need to be repaid in 6 to 12 months, while traditional mortgages have much longer repayment periods, typically 15-25 years.
Like any financing option, bridge loans come with both risks and benefits. It’s important to weigh these factors before deciding if a bridge loan is the right choice for your situation.
Benefits:
Quick Access to Funds: Bridge loans provide fast access to the capital you need to secure a new home.
Flexibility: Bridge loans offer flexibility in dealing with the timing gaps between buying and selling.
Avoid Moving Twice: Bridge loans allow you to purchase your new home without waiting for the sale of your current home, avoiding the hassle of moving twice.
Risks:
Higher Interest Rates: Bridge loans often come with higher interest rates than traditional mortgages, which can lead to higher overall costs.
Risk of Default: If your current home doesn’t sell quickly or for the expected price, you may face challenges paying off the loan.
Short-Term Commitment: These loans are short-term, which means you must act quickly to sell your property before the loan term expires.
RateShop offers access to a network of alternative lenders who specialize in bridge loans, allowing us to help you secure faster approvals and better terms. Traditional banks may not always offer the flexibility or quick processing times that bridge loan borrowers need, especially in a competitive real estate market.
By working with our team at RateShop, you can take advantage of:
Faster Loan Processing: Alternative lenders often offer faster approval times and more personalized service than traditional banks.
Competitive Rates: We can help you compare rates from different lenders, ensuring you get the best possible deal on your bridge loan.
Flexible Terms: Access to lenders who can offer flexible repayment terms to accommodate your unique real estate transaction.
Bridge loans are particularly useful in the following scenarios:
Buying a New Home Before Selling: If you find your dream home but haven’t yet sold your existing property, a bridge loan can provide the necessary funds to make an offer.
Closing on Multiple Properties Simultaneously: In cases where you need to close on multiple properties, a bridge loan can help manage the timing difference between the two transactions.
Avoiding Delays in a Competitive Market: When market conditions are tight and homes sell quickly, bridge loans allow you to act fast without waiting for your current property to sell
RateShop Inc. is a Mortgage Brokerage offering lowest mortgage rates to Canadians. We are provincially licensed in the following provinces: Mortgage Brokerage Ontario FSRA #12733, British Columbia BCFSA #MB600776, Alberta RECA #00523056P, Saskatchewan FCAA #00511126, PEI #160622, New Brunswick FCNB #88426, Newfoundland/Labrador. Our Quebec Mortgage Transactions are serviced by Orbis Mortgage Group AMF# 181136.
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