Bridge Financing, also commonly referred to as a “Bridge Loan”, is a way to help literally bridge the gap between closing on your current house and your new place. This product allows you to carry the mortgage on two properties for a specified amount of time and for typically a maximum of 90 days. As one of the Top 3 Rated Mortgage Brokers in Vancouver, we would be more than happy to assist you with understanding Bridge Financing.
How does Bridge financing work? These short-term loan products use your current home’s equity to cover some of the costs of your new home (for example, could be used for a down payment.) That way, you don’t have to miss out on your dream home while waiting on the cash from the sale of your current house.
What is the cost of Bridge Financing? You will be charged an interest rate on the amount of funds you are borrowing. This will be based on the lender’s prime rate and will vary. You can expect to pay prime plus 2-5%. You can also plan to pay an administrative fee. This will vary pending on the lender and can range from $200-$695.
Similar to most other financial decisions, there will always be advantages and disadvantages for Bridge financing. Here are a few things you should be aware of:
One of the most popular advantages of acquiring Bridge financing is financial flexibility. With this product, you will be able to use the equity you’ve built in your current home to secure the new purchase of your dream home. Since you will be able to access those funds via equity, you won’t have to stress about the sale closing of your current home before you close on your new home.
Although most terms for Bridge financing products are short, the interest rate will be similar to open rate mortgages, which are often higher than the interest rate you may have locked in with your current mortgage. If for some reason your sale agreement falls through on your current house, you may have to make up for the payments until a new sale is finalized.
To qualify for Bridge financing you will need:
- Have a current mortgage in good standing with equity
- A copy of the Sale Agreement for the home you’re selling
- A copy of the Purchase Agreement for the home you’re buying
- Valid pre-approval (with document review) with the lender of your choice
Like your home buying situation, your home financing needs are unique. Bridge financing may be the right solution for you if you would like the following…
- You’ve found your dream property and do not want to wait on submitting your offer
- You can’t afford a down payment without the money from your current home’s equity
- You want time between closing dates
If you’re a homeowner aged 55 and over, rather than taking out a regular Bridge loan, you could take out a CHIP Open Mortgage with HomeEquity Bank. The CHIP Open Mortgage can assist you in purchasing a new home when your existing property has not yet been sold.
Let’s have a look at this case study together…
- Meet the Ellis family, a couple in their early 70s who live in the Greater Vancouver Area in a home worth $1.3 million. Looking to downsize, they’re keeping an eagle eye on available properties on Vancouver Island, and finally find their dream home at a price tag of $550,000. Afraid to lose it, they act quickly to purchase the new place before selling their existing home — but don’t qualify for a large enough traditional loan, putting the dream they have for their future in jeopardy.
- This product is a CHIP Open Mortgage (A Reverse Mortgage with no pre-payment penalties) The couple was able to access $600,000, allowing them to purchase their new place outright and cover the costs of their move. With no repayments, the couple were able to properly prepare their home for sale and repaid the CHIP Open in full once the house sold.