What is bridge financing?
A bridge loan is a temporary financing option. It is designed to help homeowners “bridge” the gap between the sale of an existing home and the purchase of a new one. You can use the equity in your current home for the down payment on your next property while you wait for your home to sell.
Bridge loan terms are typically six months but can range from 90 days to 12 months or longer. To qualify for a bridge loan, a firm sale agreement must be in place on your existing home.
This type of financing is most common in hot real estate markets where bidding wars are the norm. They work when you need to make a quick decision about your dream home without worrying if your existing home has sold. When you do sell, you can use the proceeds to pay off the bridge loan and any interest.
Potential advantages of bridge loans
- Lets you use the equity in your current home for a down payment on your new home
- Can give you the funds and time to make upgrades to your new home before living there
Potential disadvantages of bridge loans
- Interest can be more expensive than conventional financing
- Can vary widely in terms, costs and conditions
- Can be a higher risk. That’s because you’re taking on a new loan with typically a higher rate and no guarantee that your home will sell during the term
Before you begin your home search, you may want to see if you’re eligible for a bridge loan.That way you’ll be ready should you have to decide quickly to make an offer on a new home.
Consult a mortgage specialist to learn more about the potential benefits and drawbacks of bridge financing.
All residential mortgages and lending products are provided by Royal Bank of Canada and are subject to its standard lending criteria.