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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.
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:
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.
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 |
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
Cons
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.
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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