In this post I am going to talk about mortgage bridge loans, used for buying another property before your current property sells. We’ll cover what bridge loans are, and the difference between purchasing a home with and without a bridge loan. Let’s get started!
In Canada, bridge financing means acquiring a loan that’s used to cover your down payment for a new property before your current property sells. Bridge loans are high-interest short-term loans, that typically need to be paid back within a few months. These loans work by borrowing against the equity from your current home.
Fee-wise, the cheapest option from the bank is for you to sell your house and have a two or three day period until your new purchase completes. Given a few days to work with, everything can take place in the backend for financing with the lawyer and the bank. This scenario would not require a bridge loan, as a few days is enough time for the bank and the Solicitor to do what they need to do without rushing.
Yes, it is possible for this to be done without a bridge loan on the same day your property sells and you complete your purchase for a new property. However, that is a very stressful situation for you, as it isn’t guaranteed everything gets done on time.
With a bridge loan, the bank loans you your down payment based upon the equity in your property you are selling. For the bank to do this, the sale of your current property would need to be firm and have subjects removed. They will not offer a bridge loan until subjects are removed on your previous property.
Different lenders have different rules and fees in regards to this and it is best to know up front before committing to a lender, as some are significantly more expensive than others. Some lenders allow you to have the borrowed funds anywhere from 30 days to 90 days until your previous property sells to pay off the bridge loan.
Each lender also has different maximums and minimums they will loan, ranging from $5000 to unlimited (within reason). Lastly, they all have different fees and rates they will charge for the time they loan the money. There are other options than bridge loans, but these require either refinancing or a private lender and you would need to be able to carry both mortgages.
I am happy to discuss the best options for your situation and recommend a cost effective solution to you, whether that’s using a bridge loan or otherwise. Contact me with any questions using the form below or call 250-826-3111.
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