Note of Interest: Higher interest is charged for a bridge loan due to the risk assumed by the lender, and not all lenders offer them — a True North Mortgage broker can find your best option for a smooth transition.
A short-term loan for when you're between homes.
Buying a new home and selling your old one? If the closing dates overlap, this convenient product can help carry you through.
When buying your next home to live in, the purchase of your new home may not line up perfectly with selling your current one — you may need to 'own' both for a short period to account for different closing dates.
That's where bridge financing comes in. It's a short-term loan that allows you to borrow the down payment from your old home to buy the new one and temporarily span your mortgage over two homes even though you're only paying for one.
Many Canadian homebuyers get a bridge loan in the ordinary course and may be barely aware of it — which is the point in how it works to help you transition between homes.
Also known as interim or gap financing, your bridge loan is secured against the equity in your current home, allowing access to funds to buy a new one before your current home is sold.
Even though the process happens out of sight (and sometimes out of mind), understanding the terms and conditions of bridge financing is important.
We help you know your costs and requirements for a successful home-buying experience.
Your current home is worth $500K and your mortgage balance is $300K. With potentially $200K of equity, a lender would deduct a certain amount based on the closing costs you might pay, and lend up to 90% of the remaining amount as a bridge loan towards your new purchase.
(Bridge loan amount is dependant on current market conditions, an appraisal and qualifying details.)
The amount you'll be able to pull for the new down payment will affect the price of the home you can get and your new mortgage amount — it's essential to know your affordability limits.
Get a mortgage pre-approval before you look for a home, and keep in contact with your True North Mortgage broker to help ensure you'll get unconditional mortgage approval on your new home when the time comes.
As with any very short-term loan, you'll pay a higher interest rate for this interim loan (typically prime + 3% to 5%), and there's usually a bridge loan fee; there may be added admin fees to cover with the lender or lawyer (help from your True North broker is free).
These added expenses are typically folded into your closing costs, which you'll need to budget for separately from your down payment — they can't be rolled into your new mortgage amount.
Despite the higher interest rate, the relatively short time frame between closing dates will help to keep the interest costs limited.
Note of Interest: Higher interest is charged for a bridge loan due to the risk assumed by the lender, and not all lenders offer them — a True North Mortgage broker can find your best option for a smooth transition.
You won't need to make payments towards your bridge loan during the transition between homes. You'll pay out the interest charged as a closing cost, which is handled through your lawyer.
You'll continue to pay your current mortgage payment until the new home is transferred to you through your lawyer on the closing date of your home purchase deal.
You will only need bridge financing if the closing date on your old home sale overlaps with the closing date on your new home purchase.
Many homeowners prefer a bit of overlap, allowing them more time to move out and clean up.
Our highly trained, salaried mortgage brokers are obsessed with providing your best mortgage experience.
We can access several lenders and products on your behalf for free. And we know the pain of dealing with buying and selling at the same time because we've been around the (mortgage) block more than a few times (actually, over 17 years).
With 15,000 5-star reviews and counting, we put you above the stress to save you time and money.
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