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Bridge Financing
Bridge financing is a short-term loan that lets you buy a new home before your current one sells. It advances equity from your existing home to cover the down payment and closing costs for the new property, and is repaid in full once your sale closes.
Bridge Financing Quick Facts
- Short-term loan that bridges two closing dates
- Advances equity from your current home
- Usually needs a firm sales agreement in place
- Repaid in full when your existing home closes
- Carries a higher rate than a regular mortgage
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What Is Bridge Financing
Bridge financing, also called a bridge loan, covers the timing gap when the closing date on the home you are buying lands before the closing date on the home you are selling. Rather than delay your purchase, you borrow against the equity you already have and repay the loan once your sale proceeds arrive.
Most lenders cap the loan at the equity in your current home, the sale price minus the outstanding mortgage and estimated selling costs. If that mortgage is registered as a collateral charge, you’ll also need to advance any remaining equity. That said, some lenders require you to keep residual equity after the sale in case unexpected costs arise. Terms usually run up to 90 days, though some stretch to a year, and you make no regular payments; the balance and interest are settled from your sale proceeds. See nesto’s guide to bridge financing for how the math works.
Why Bridge Financing Matters for Mortgages
Bridge financing solves a real problem in a tight market: it lets you commit to a new home without waiting for your sale to firm up, so you are not forced to rent, move twice, or accept a low offer to line up dates. It also frees up your down payment before that equity is actually in hand.
The trade-off for this financing process is a higher cost. Bridge loans are priced well above regular mortgage rates, often around prime plus a premium, and add administrative and legal fees. The bigger risk is an open bridge with no firm buyer, since carrying two mortgages plus the bridge can strain your budget if the sale drags, which is why lenders usually want a firm, unconditional sale agreement before advancing funds.
Common Types of Bridge Financing
Lenders structure bridge loans in a couple of ways.
Closed bridge. Used when you already have a firm, unconditional sale on your current home. The lender knows the payoff date, so rates and terms are more favourable.
Open the bridge. Used when your home is listed but not yet sold. It carries more risk and cost because the repayment date is uncertain, and not every lender offers it.
Deposit or gap financing. A short advance against guaranteed sale proceeds to fund the deposit or down payment, sometimes handled by your lawyer without registering a charge.
For example, your current home is worth $700,000 with a $300,000 mortgage, and your purchase closes 45 days before your sale. A bridge loan can advance up to roughly $400,000 in equity, less selling costs, to fund your down payment and closing costs. When your sale closes, the proceeds repay the bridge loan and its interest.
Common Mistakes and Misunderstandings About Bridge Financing
- Assuming you qualify for a bridge without a firm sale
- Forgetting the higher rate and setup fees
- Believing you make monthly payments during the term
- Overlooking the risk if your sale falls through
- Thinking that every lender offers open bridge financing
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Frequently Asked Questions (FAQ) About Bridge Financing
What is the difference between bridge financing and a HELOC?
Bridge financing is a short-term loan repaid from the proceeds of your home sale, with no regular payments. A HELOC is an ongoing revolving line of credit secured by your home equity, which you draw and repay over time.
How long does bridge financing last?
Most bridge loans run up to 90 days, though some private lenders allow terms up to a year. The balance is due when your current home closes.
Do I make payments on a bridge loan?
Usually, no payments are made until the bridge loan is settled. Interest accrues and is paid, along with the principal, from your sale proceeds upon closing.
Can I get bridge financing without selling my home first?
Sometimes you can get bridge financing without having a firm sale on your current property. An open bridge can work when your home is listed but not sold, though it costs more and fewer lenders offer it. A firm sale gets you better terms.
How much can I borrow with a bridge loan?
Generally, up to the equity in your current home, it’s the expected sale price minus the outstanding mortgage and selling costs. You’ll also need to advance any remaining equity in your current mortgage if it’s registered as a collateral charge. However, some lenders require you to have residual equity remaining after the sale in case unexpected costs arise.