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If you’re in the process of buying a new home but can’t close on your current property until after your new property’s closing date, you may need to take out a bridge loan. A bridge loan can help “bridge” the gap between the two closing dates.
If you’re interested in learning more about this mortgage loan and whether it might suit your situation, read on!
Bridge financing, also called a bridge loan, is a temporary financing solution designed to help homeowners close on purchasing a new property before closing on the sale of their existing property.
Bridge financing allows you to borrow against your current home’s equity to finance your new home’s purchase cost, like a down payment.
Bridge financing is usually short-term, typically three to six loan terms maximum.
When taking out this type of loan, borrowers must make sure they have enough money left over after paying off all costs associated with selling their current house to pay back the bridge loan.
Many people turn to bridge financing when they have multiple properties in different provinces but don’t want to wait until their closing dates happen before moving into their dream homes.
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When taking out this type of loan, borrowers must make sure they have enough money left over after paying off all costs associated with selling their current house to pay back the bridge loan.
You don’t have to miss out on purchasing your dream home because you want your current home to close to get the required down payment funds. Bridge financing allows you to use the equity in your existing property to raise the money needed to complete your new property while waiting for the closing of the property.
In this case, you can take out a bridge loan against your current home’s equity to cover the down payment on your new home.
A bridge loan is short-term financing, usually between six to 12 months. All you want now is the money to bridge the gap between the new home purchase and the sale of your old home.
Although your existing home secures the bridge financing loan, the interest rate on this type of home loan is still a little higher than those on a standard mortgage, HELOC, or home equity loan because of the short loan term.
The price of these loans depends on how long it takes for both mortgages to close and when they do so.
Bridge loans typically have higher interest rates than traditional mortgages because they are short-term.
The average rate hovers around 5% but given market fluctuations. It could fluctuate. This number could fluctuate slightly, so always ask about these charges before taking out a new mortgage!
Even if the rate seems high compared to other financing types, it’s usually much lower than what you pay for a standard second mortgage loan.
In addition to the interest rate fees, purchasers should be aware of additional legal and lender fees that could be charged on loan.
These loans are not for everyone, but if you’re in a situation where it’s the only way to make your real estate dreams come true, don’t be afraid to talk with lenders about these types of loans!
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It is important to note that not all lenders offer bridge financing, and the ones who do typically only provide it if they already have a mortgage relationship with you.
While it is a good idea to research your options, here are some lenders who offer bridge loans in Canada:
Remember that most lenders will only consider your suitability for bridge financing if you demonstrate that you have the required equity in your existing home.
Many consider an alternative to bridge financing as a home equity line of credit (HELOC).
While this reduces interest rate charges and other lender fees, it does not provide flexibility in purchasing a new home.
If there are no options for bridging loans, renting your current property out may be an even better idea than taking on additional pressure, especially since home values can sometimes remain stagnant during these types of transitions!
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