Monday, 10 August 2015

Bridge Financing

 To bridge, or not to bridge?

Bridge financing is an interesting solution to a very specific problem: If you have agreed to purchase a new home and also have an agreement to sell your old one, you might consider bridge financing to cover the transition period between homes. This product would be used in the case that the purchase of your new home takes place before the sale of your current home has completed.

Not THAT kind of bridge..
For a buyer planning to use the equity in their current home as a down payment(or partial down payment) on the next home, most people automatically assume you must wait until your home has sold and the money has changed hands. Not with bridge financing! This short-term solution can allow you access to the equity temporarily, giving you time to complete the sale of your last home while you have already moved into your new one.

Some important points to consider:

  • Not all lenders offer this solution(See your broker!)
  • It is only designed as a short-term solution, usually not more than 120 days
  • Interest rates are usually around Prime + 2 to 3%
  • There will be an administrative fee to set up
  • Usually doesn't require lien registered on home if under $100,000(Saves legal fees $)
  • Can be up to $200,000 in most cases
  • You must have an Unconditional offer(No subjects remaining) to sell your current home to qualify
Once the sale of your last home is completed, your lawyer will use the proceeds from that transaction to pay off the bridge loan that was arranged as well as any outstanding previous mortgages. There are no extra fees or penalties required to pay off the bridge financing. Any funds left over will then be passed along to you as the seller once all adjustments have been made and everyone has been paid accordingly.

Bridge financing is not the solution for everyone, but it fits the needs of a select group of home buyers. With all the different timelines and possible scenarios, it's best to contact your mortgage broker to discuss the details and find out if this product might fit your unique situation.
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