Let’s Bridge the Gap and explain what this is.  When it’s required.  How it works and what it costs.

Bridge Financing is for homeowners who are selling their current home and purchasing a new home.   It’s needed when the Closing Date for your purchase is before the Sale Date of your current home.  Even then, it is only needed when you are using equity in your current home for the down payment and closing costs of your new purchase.

So many people in Port Elgin, Kincardine and surrounding areas are trading up lately.  This has become a frequent topic in our office with clients.

a typical bridge loan example looks like this

You are purchasing a new home closing May 30th.  Luckily, you also have a firm sale of your current home closing June 5th.  But – you need the $50,000 you are going to make from the sale on June 5th for your down payment on May 30th.  Whoops!?!

Bridge financing offers the solution. It is a short term loan – interest only – up to the maximum amount of equity from the sale of your home.  The key here is that you must have a FIRM SALE on your current home.  Bridge loans can help in that gap period of typically between 1 and 30 days.  Some Sellers try to create this overlap to give them more time to move and clean or paint.

There is usually a small fee plus interest calculated daily at Prime plus 1-5% depending on the size of fee.  For example, $250 plus Prime +2%.  In his example, that would be $250 plus $38.63 in interest.  Pretty affordable.

We would apply for the bridge loan at the same time as applying for your mortgage.  When your current home sells, the bridge loan is paid out in full by your lawyer.

no stress required

So, don’t stress if your purchase and sale don’t match up.  Bridge loan is a good solution to this overlap.  It also allows you to move with less time pressure (although I typically like to get it done fast – and move on :-))