The truth is, it’s very hard to predict when you’re going to find the home of your dreams, and how long it will take you to sell the house you’re in. In my business, I’ve found that this is a major source of worry, often because people are afraid of bridge financing. In my experience though, the long term satisfaction that comes from securing the home you want counter balances the anxiety that can come with trying to time a sale and purchase just right. Bridge financing can be a tool for getting what you want – and it’s not as scary as you might think.
Here’s some food for thought:
1. It’s pretty common.
Mortgage brokers estimate 20-30% of homeowners use bridge financing when purchasing a new home. Because bridge loans are so common, all of the big banks – including TD, CIBC, Scotia bank, RBC and BMO – offer bridge financing to their mortgage customers. Some smaller lenders may not be able to offer you bridge financing though, so it’s always a good idea to discuss your options with your mortgage agent.
2. It’s short term.
Most lenders are comfortable lending up to $200,000 for as long as 120 days. If you require a larger loan or a longer amount of time, they’ll evaluate your situation on a case-by-case basis (which may require a little more work). On most bridge loans, the lender won’t register a lien on your property. For larger or longer loans, they may need to consider doing so – you should know that it’ll be more expensive in such cases, to include required legal fees.
3. It will include some fees.
Like any loan, a bridge loan is subject to interest – often at a rate similar to an open mortgage or a personal line of credit. While the interest rate on your bridge loan will be higher than your mortgage rate – usually Prime + 2.00% or Prime + 3.00% – it will be charged for a short period of time, before the equity from your previous home will be available. Your lender will also likely also charge a flat administration fee – typically $200-500. Finally, if you require a larger or longer loan (over $200,000 or more than 120 days) they may register a lien on your property. To remove the lien, you’ll need to hire and pay for the services of a real estate lawyer.
4. It’s worth checking out.
Finding out if you qualify for a bridge loan just requires a copy of the Sale Agreement from your current home and the Purchase Agreement for your new home. If you don’t have a firm selling date, you may need to consider a private lender for the bridge loan, as most banks and traditional lenders require it.