How Bridge Loans Work
| Feature |
Details |
| Purpose |
Fund new home purchase before existing sale closes |
| Amount |
Usually the equity from your current home sale |
| Term |
Typically 1 day to 6 months |
| Security |
Your existing property |
| Requirement |
Firm sale on existing home |
When You Need a Bridge Loan
The Timing Problem
| Scenario |
Need Bridge Loan? |
| Selling first, then buying |
Usually no |
| Buying and selling on same day |
Usually no |
| Buying before sale closes |
Yes |
| Sale falls through, already bought |
May need alternative |
Example Timeline
| Date |
Event |
| March 1 |
Firm sale on current home (closes May 15) |
| March 15 |
Buy new home (closes April 15) |
| Gap |
30 days β need bridge loan |
| April 15 |
Bridge loan provides down payment |
| May 15 |
Sale closes, bridge loan repaid |
Bridge Loan Costs
Interest Rates
| Lender Type |
Typical Rate |
| Major banks |
Prime + 2-3% |
| Credit unions |
Prime + 2-4% |
| Alternative lenders |
Prime + 4-6% |
Total Cost Example
| Factor |
Amount |
| Bridge amount |
$200,000 |
| Interest rate |
Prime + 3% (assume 8.5% total) |
| Duration |
30 days |
| Interest cost |
~$1,400 |
| Admin/setup fee |
$200-500 |
| Legal fees |
Included in purchase closing |
| Total cost |
~$1,600-1,900 |
Cost by Bridge Amount
| Bridge Amount |
30 Days |
60 Days |
90 Days |
| $100,000 |
~$800 |
~$1,500 |
~$2,200 |
| $200,000 |
~$1,500 |
~$2,900 |
~$4,300 |
| $300,000 |
~$2,200 |
~$4,300 |
~$6,500 |
At approximately 8.5% annual rate plus fees.
Eligibility Requirements
Typical Requirements
| Requirement |
Details |
| Firm sale agreement |
Not conditional |
| Mortgage approval |
For new property |
| Same lender |
Usually (for convenience) |
| Maximum term |
Often 90-120 days |
| Minimum bridge |
Varies ($25,000+) |
Documents Needed
| Document |
Purpose |
| Purchase agreement (new home) |
Proves purchase |
| Sale agreement (current home) |
Proves funds coming |
| Current mortgage statement |
Outstanding balance |
| New mortgage approval |
Proves financing |
How to Apply
Process
| Step |
Action |
| 1 |
Get mortgage approved for new home |
| 2 |
Secure firm sale on current home |
| 3 |
Request bridge loan from lender |
| 4 |
Provide purchase and sale agreements |
| 5 |
Lender calculates bridge amount |
| 6 |
Sign bridge loan documents |
| 7 |
Funds available at new home closing |
Bridge Loan Calculation
| Factor |
Amount |
| Sale price of current home |
$600,000 |
| Minus mortgage owing |
$300,000 |
| Minus real estate commission (~5%) |
$30,000 |
| Minus legal/closing costs |
$5,000 |
| Net proceeds (bridge amount) |
$265,000 |
Lender Options
Major Banks
| Bank |
Bridge Loans Available |
| TD |
Yes |
| RBC |
Yes |
| BMO |
Yes |
| Scotiabank |
Yes |
| CIBC |
Yes |
Alternative Options
| Lender Type |
When to Consider |
| Credit unions |
May have flexibility |
| Mortgage brokers |
Access multiple lenders |
| Private lenders |
When bank won’t approve (higher cost) |
What If Sale Falls Through?
Risks
| Scenario |
Consequence |
| Buyer backs out |
May need to find new buyer quickly |
| Conditions not met |
Sale doesn’t close |
| Bridge due |
Must repay or convert to different loan |
Mitigation
| Strategy |
Details |
| Firm sales only |
No conditions = more certain |
| Backup plan |
Line of credit, HELOC |
| Contingency clause |
In purchase (risky for seller) |
Alternatives to Bridge Loans
Sell First, Then Buy
| Pros |
Cons |
| No bridge needed |
May need temporary housing |
| Know exact proceeds |
Two moves |
| Less stressful |
May miss ideal purchase |
Same-Day Closing
| Pros |
Cons |
| No bridge needed |
Coordinate two closings |
| One move |
Risk if either delayed |
| Lower cost |
Stressful |
HELOC Before Selling
| Pros |
Cons |
| Access equity anytime |
Set up in advance |
| Reusable |
May affect mortgage qualification |
| Lower rate than bridge |
Requires sufficient equity |
Carry Two Properties Temporarily
| Pros |
Cons |
| Maximum flexibility |
Must qualify for both mortgages |
| Time to sell |
Expensive if slow sale |
| No bridge fees |
Carrying costs add up |
Bridge Loan vs HELOC
| Factor |
Bridge Loan |
HELOC |
| Setup |
Quick (days) |
In advance |
| Rate |
Prime + 2-4% |
Prime + 0.5-2% |
| Term |
Short (days-months) |
Ongoing |
| Qualification |
Need firm sale |
Based on equity |
| Best for |
Short gaps |
Flexible access |
Tax Implications
| Consideration |
Details |
| Interest deductible? |
Generally no (personal residence) |
| If rental property |
May be deductible |
| Moving expenses |
Track separately (may be deductible) |
Questions to Ask Your Lender
| Question |
Why It Matters |
| What is the interest rate? |
Compare costs |
| Are there setup fees? |
Full cost picture |
| What is the maximum term? |
Plan for delays |
| What if sale is delayed? |
Contingency options |
| Can I pay off early? |
Flexibility |