When purchasing a new home, homeowners often run into the issue of having to close their newly purchased home before their current one. That is where bridge financing comes in. This type of loan works as a tool to help bridge the financial gap between the buying and selling of a new home.
What is Bridge Financing?
A bridge financing mortgage solely allows homeowners to use the equity of your current home to pay the down payment of your new home, all while waiting for your present home to sell. Bridge financing in Ontario is a short-term solution, ranging between 90 days and 12 months. To be granted one of these loans, a sales agreement must be in place for your current home.
The Pros and Cons of Bridge Financing
There are both advantages and disadvantages to consider before committing to a bridge loan. It is critical to review the pros and cons to decipher whether this is the right route for your financial situation.
| Bridge Financing Advantages | Bridge Financing Disadvantages |
| Gives you flexibility when selling your home | Potential higher interest rate than typical financing options |
| Allows you to go through with a new home purchase before selling your current home | A risky loan to take on due to the possibility that your current home won’t sell |
| Use your existing home’s equity as a down payment towards your new home |
Alternatives to Bridge Financing
Risks and potentially high-interest rates, often shy homeowners away from a bridge mortgage. So what are the alternatives to a bridge mortgage? A Home Equity Line of Credit is the other option out there. The rates and fees tend to be cheaper with this alternative, though the majority of lenders will not grant it if your home is already on the market. Which really doesn’t make it a viable solution for those looking to buy a home while their current property is for sale.
FAQs
Bridge financing allows homeowners to use their current home’s equity as a down payment on their new home. It is essentially a temporary way to purchase a new home while you are still trying to sell your current one.
Anyone who possesses adequate funds and can provide proof that their home is on the market can qualify for a bridge loan. Of course, there are more specifics for each situation, in which case we suggest contacting us directly.
It all depends on your financial situation. If you can afford the added costs, then absolutely. This solution allows you to get ahead and not miss out on the perfect home for your household.
Bridge financing in Canada is a specialty here at Mortgage Residence. For more specific details on your mortgage inquiry, contact us directly at your convenience.