In a competitive market like Ottawa’s, you may find the right home before your current one is sold, or the closing dates may not line up. Bridge financing is one way to handle that timing problem. Here is how it works and what to check first.
How bridge financing works
- You sell your current home with a firm, unconditional agreement and a closing date.
- You buy a new home that closes before your sale does.
- The lender advances the funds for your down payment, secured against your current home.
- You repay the bridge loan from the sale proceeds when your current home closes.
What it costs
- Interest, usually at a rate higher than your regular mortgage, for the number of days you use it
- An administration fee, often a flat amount
- Legal fees, if any, for the additional documents
Ask the lender for the total cost for your closing dates, since a short gap is usually inexpensive but a long one is not.
Requirements to expect
- A firm, unconditional sale agreement with no outstanding conditions
- Enough equity in the current home
- Approval for the new mortgage, which usually comes from the same lender
- Closing dates that are typically within a limited period of each other
Alternatives
- Matching closing dates. Ask your realtor to align both closings, if you can.
- A home equity line of credit. Some homeowners use a HELOC to cover the gap. See HELOC vs refinance vs second mortgage.
- Selling first. This is the lowest-risk approach, even if it means temporary housing.
- Porting your mortgage. See porting and blending.
Frequently asked questions
Can I get bridge financing without a firm sale?
Generally no. Lenders want an unconditional sale agreement so they know the loan will be repaid. Some private lenders are more flexible, at a higher cost.
How long can a bridge loan last?
Usually a few weeks to a few months. It is meant for a short gap between closings.
Is a bridge loan the same as a second mortgage?
No. A bridge loan is short-term and repaid from a specific sale, while a second mortgage is a longer-term loan secured behind your first mortgage.
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