When it comes to financing, there are lots of different types of loans available. One common loan is a bridge loan, also referred to as bridge financing, gap financing, interim financing, or a swing loan. If you’re looking to upgrade to a new home and have not yet sold your current home, a bridge loan may be exactly what you need. To find out more about bridge loans, read on as we outline how a bridge home can help you.
Bridge Loan Uses
A bridge loan is a short-term loan that is used to borrow money against your current property to help finance the purchase of another property. If you’re pretty certain that your home won’t be closing at the same time that you purchase, it will help you by bridging the gap of time between when you sell your old property to when the new property is purchased.
Although this loan is often good for a six-month period, you may be able to extend a bridge loan for up to 12 months. And because it is a loan that is in addition to your mortgage, it carries a higher interest rate. You can expect to pay an interest rate above the average fixed-rate and additional fees set by the lender.
How It Works
A bridge loan can be opened as a second or third mortgage to be used as the down payment for the new property. Just be certain you can afford the extra mortgage, as you will still need to make the regular payments on your old mortgage. Alternatively, it can also be used to pay off any existing liens and the excess amount can be used as the down payment. With this method, you won’t need to make payments on your bridge loan but instead, use the proceeds to pay for the bridge loan once your house sells.
With this type of loan, financing costs are higher so they should only be used primarily as short-term solutions and not long-term financial solutions. As a borrower needs to pay the loan more quickly, there may be additional fees and penalties on late payments. Plus, some lenders may have prepayment penalties, where you would need to pay them if you sell and want to pay the loan back too early. So, to avoid penalties or additional fees, it is recommended to talk to your mortgage broker in Vaughan who can help direct you to the best bridge loans available on the market that match your requirements.
If you believe that a bridge loan can help you, talk to The Financial Forum. Our qualified mortgage brokers can provide you with all the information you need and the deals that are available to you.