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Bridge Financing 101

Your guide to understanding bridge financing

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Written by Joel Kranc

What is bridge financing?

Journeys are never strait. Getting to “point B” can be filled with unknown areas that are connected via bridges.

The same can be said for our finances. Oftentimes there may be a gap in financing from the sale of an existing home to the purchase of a new one. If you buy before you sell, and you don’t have profit from your existing home to make a down-payment or purchase, a “bridge loan” or “bridge financing” will literally bridge those two events with a short-term loan you may need. It allows you to carry two mortgages at the same time – typically for a 90-day period.

Bridge loans are personal. Depending on your financial situation and how you’ve structured your purchase and sale agreements will dictate if you need bridge financing. It might be wise to talk to your real estate agent, and financial planner or mortgage broker to see what will work in your situation.

Qualifying for bridge financing in Canada

Bridge financing comes with some pre-planning in order to ensure administrative and financial documents are in order.

Generally, all that is required is 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 want to consider a private lender for the bridge loan, as most banks and traditional lenders require it.

Documents needed, include:

  • Identification
  • Income Verification
  • Current Mortgage Statement
  • Proof of Down Payment
  • MLS Listing
  • Property Appraisals
  • Signed Purchase and Sale Agreements
  • Void Cheque

How is a bridge loan calculated?

Let’s say you’ve purchased a home and your closing date is in 30 days. However, the closing on your existing home isn’t for another 90 days. A bridge loan will cover the 60 days in between.

Here's how: If your current home is worth $300,000 and you owe $200,000 on your mortgage, you may be eligible for a $100,000 bridge loan.  Once your current home sells, that equity is used to repay your bridge loan.

Typically, most banks require confirmation that you have sold your home to a qualified buyer.

Which Canadian lenders offer bridge financing? 

Each of the big banks in Canada offer bridge financing to their mortgage customers, including:

Insurance Companies Company Type Phone Address
Bank of Montreal Financial institution 1-877- 225-5266 1 First Canadian Place 100 King St. W., Toronto, ON,
CIBC Financial institution 1-416-980-3096 199 Bay St., Commerce Court Toronto, ON, CA, M5L 1A2
HSBC Financial institution 1-888-310-4722 885 West Georgia St. Vancouver, British Columbia V6C 3E9
Neo Financial Financial institution 1-855-636-2265 200 8 Ave. SW #400, Calgary, AB T2P 1B5
RBC Financial institution 1-416-974-5151 200 Bay St., Royal Bank Plaza, Toronto, ON, CA, M5J 2J5
Rocket Mortgages Financial institution 1-844-733-4766 156 Chatham St. W., Suite 2, Windsor, ON, N9A 5M7, Canada
Scotiabank Financial institution 1-800-472-6842 44 King St. W., Scotia Plaza 8th Floor, Toronto, ON, CA, M5H 1H1
Simplii FInancial Financial institution 1-888-723-8881 161 Bay St., Toronto, ON M5J 2S8
Tangerine Financial institution 1-416-756-2424 111 Gordon Baker Rd., Toronto, ON, M2H 3R1
TD Canada Trust Financial institution 1-800-430-6095 79 Wellington St. W., Toronto, ON M5J 2Z9

The pros and cons of bridge financing

Bridge financing in Canada should be thought of as a tool not a means to an end. Of course, having the down payments and cash you need on hand to buy a new home is ideal. Most people need the tools offered to them and having the equity of the home you are selling is a perfectly good way to achieve your goals of purchasing your next home.

But not everything is a one-size-fits-all solution. It is important to weigh the pros and cons of bridge loans to see if they suit your homebuying needs. For example:

Pros

  • A bridge loan can be arranged quickly.
  • Can be secured against the available equity in property.
  • Can allow buyers to find their next home with less financial stress or worries.
  • Lets you use the equity in your current home to make a down-payment on a new home.

Cons

  • Interest rates are often higher than typical mortgage rates.
  • Can be high risk if your home does not sell or does not sell quickly.
  • Terms, costs and conditions can vary widely.

Frequently asked questions about bridge financing

How can I find the best bridge financing rates in Canada? 

Comparison sites like RATESDOTCA can help consumers find the best refinancing or bridge loan rates. Also, talk to your mortgage broker or real estate agent about options.

However, bridge loans can sometimes (but not always) be a “second tier” or “last resort” option for some people. The ideal scenario before you consider bridge loans is to secure the best mortgage rate possible. This can be done by shoring up finances, reducing debt, saving as much as possible for a down payment, keeping your income stable and comparison-shopping various rates through RATESDOTCA.

Who would benefit from bridge financing?

Buyers of a home who have not yet sold their existing home could benefit from the short-term loan and receive equity in their property to make their purchase.

Bridge loans are there for people who don’t have a down payment beyond what they can achieve through their home’s equity. This flexibility can help you secure the home you are looking to buy without losing out on a bidding process, for example. Also, it provides time. If you haven’t yet sold your current house, a bridge loan can add time to that process while still allowing you to make a new purchase in the interim.

It’s important to understand that the interest rate can be higher than a typical mortgage. If you’re not able to sell your house quickly, you may be paying two mortgages at once until that older home is sold.

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