What Is Bridge Financing?
Bridge financing, also known as an interim loan, is gaining in popularity. When a homebuyer plans to purchase a new home before selling an existing one, there are two common ways to obtain the necessary down payment: a bridge mortgage or a home equity mortgage (or Home Equity Line of Credit, HELOC).
Generally, a home equity loan is less expensive, but bridge financing offers more benefits for some borrowers. In addition, many lenders will not issue a home equity loan if the home is still on the market. We will help you compare the benefits between the two options to determine which is more suitable for your particular situation.
What is a Bridge Loan?
A bridge mortgage is a temporary loan that bridges the gap between the sale price of a new home and a homebuyer’s new mortgage. If the current home has sold but the transaction does not complete before the closing on the new purchase a bridge loan is secured by the buyer’s existing home. The funds from the bridge loan are then used as a down payment on the new home.
Rates will vary among lenders. The following is an average estimate for a bridge loan. Interest rates fluctuate, but for this example, let’s use 8.5%. This type of bridge loan will carry no payments for four months; however, interest will accrue and be due when the loan is paid upon sale of the property. Here are some possible fees:
- Administration fee: $750
- Appraisal fee: $375
- Escrow fee: $350
- Title policy fee: $350+
- Notary fee: $40
- Recording fee: $65
- Wire/courier/drawing fee: $75
Home Buying Benefits of A Bridge Loan
- Bridge loans may not require monthly payments for a few months
- If the buyer has made a contingent offer to buy and the seller issues a Notice to Perform, the buyer can remove the contingency and still move forward with the purchase
Home Buying Drawbacks of A Bridge Loan
- Bridge loans cost more than home equity loans
- Buyers will be qualified by the lender to own two homes and many will not meet this requirement
- Making two mortgage payments, plus accruing interest on a bridge loan, could cause stress
There are circumstances when a homebuyer encounters difficulty in obtaining a mortgage or other funds on the closing date and they’re unable to close the transaction. When this happens, if you don’t have bridge financing in place, you won’t be able to close on your new home as the funds from the sale of your existing home are not available. This scenario can result in large costs including moving and storage fees, additional legal fees, financial penalties from the builder of a new home or vendor of a resale, cancellation fees for service contractors, not to mention the stress and anxiety that can occur because you’re not able to move in to your new home.
We understand that real estate transactions don’t always close simultaneously. In the event that interim or bridge financing becomes a necessity, we can often work with a lender to obtain proper financing for you. Call GLM Mortgage Group to set up a free consultation to learn more.
What is the GLM Mortgage Group?
GLM Mortgage Group, powered by Dominion Lending Centres, is your Vancouver and Lower Mainland Mortgage Brokerage service. We are always ready to move forward with you to obtain the mortgage you need with the sharpest mortgage rate available. Whether it’s a fixed rate or variable rate mortgage you are after, we are dedicated to finding the best mortgage rates in Vancouver, including Home Loans, Consolidation Loans, Lines of Credit and more. No matter what you need, our team of Mortgage Specialists will follow through to find the best mortgage product that fits your individual circumstances. Our free online mortgage calculator keeps you informed on how much your mortgage payment will be as well as show how different mortgage rates will affect the mortgage you require.As your Vancouver mortgage broker, GLM Mortgage is committed to clear communication with our clients. We make sure you are informed on all the mortgage options available to you. We call you back within 90 minutes to make sure that you have the fastest service available. We are not only available in Vancouver and the Lower Mainland, we are also available across Canada.GLM Mortgage Group is your Vancouver mortgage specialist. With over 22 years of experience in the investment industry we know how to wade through the challenging process of getting a mortgage. We provide smarter options to putting your mortgage in place. We know how important it is to have an experienced professional Mortgage Specialist available to walk through your mortgage experience and stay with you through to the very end.We get you a fast “YES” at the sharpest rate… guaranteed! Call us now so that you can get that mortgage you’ve been waiting for. We already have been working for you, making sure that you will have every option of a mortgage available to you. GLM Mortgage Group is on call for you!