Bridge Financing Can Make the Journey Between Home Purchases Easier

Travel is never smooth, and financing between homes can often be just as difficult. A mortgage bridge financing canada (known in Canada as "bridging loan") may help make this transition simpler.

Banks typically require that you present both copies of the sale agreement for your old home as well as purchase agreements for both properties in order to qualify for a bridge loan.

What is a bridge loan?

Bridge loans provide temporary financing solutions that assist buyers who are in the midst of selling one property and purchasing another one, often at higher interest rates. Before opting for this form of funding, potential borrowers should conduct an in-depth calculation before taking this route.

Banks typically offer 90-95% loan-to-value ratio bridge loans and allow buyers to borrow against existing equity in their home. To be eligible, however, buyers must first have secured the sale of their existing property and have put down a deposit on the one they're purchasing as well as having completed a firm sale and secured another deposit downpayment for their new one.

Bridge financing is also frequently utilized for commercial real estate projects that require interim stage funding, with lenders using collateral demand against future securities to refinance a bridge loan and convert it to more permanent funding solutions.

How is a bridge loan calculated?

Bridge loans must meet the same qualifications as mortgages and are secured against your home. Lenders require you to show both the agreement of purchase and firm sale for your existing property as well as one for your new one in order to be approved for this type of loan.

Most lenders allow homeowners to borrow up to their home's equity amount; this could amount to quite a lot, considering Canada's home prices have become so expensive in recent years. Bridge loans tend to be short-term, and borrowers will only pay interest during their term of borrowing.

If you need to buy before your old one sells, bridge financing may be the way to go in Canada. Before beginning to shop for homes, be sure to prepare your finances by eliminating debt, saving for a down payment, and shopping around for the best mortgage rates using websites like RATESDOTCA.

Which Canadian lenders offer bridge financing?

Bridge financing in Canada allows you to access the equity in your home as collateral for borrowing against it. A typical bridging loan typically lasts only until a buyer for your property has been confirmed - at which point, its equity can be used as repayment towards paying back its balance.

If you need a larger bridge loan, banks will assess it on an individual basis. They require evidence of both your home's sale agreement and purchase agreement as well as registration of any liens against either. In order to be approved for one, banks usually need two forms of evidence for approval: sale agreement for your existing property as well as purchase agreement for your new one. 

Bridge loans provide the ability to purchase your next home even when closing dates don't line up, though you will pay a higher interest rate as you will carry two mortgages at the same time.

What are the pros and cons of bridge financing?

Bridge financing may be beneficial to Canadian homebuyers who need extra time to sell their existing homes; however, it comes with certain drawbacks that must be considered when considering this form of funding.

One major drawback of bridge loans is that their interest rates tend to be much higher than mortgage interest rates, especially if your income or credit score are low.

Additionally, bridge loans often carry fees such as an administration fee and property tax lien which can tack on significant expenses over the life of the loan.

Bridge financing can be difficult to qualify for. Banks will typically require you to have both your existing home and new one under firm sale-purchase agreements in place; as well as showing them your mortgage statement to assess how much equity exists in each.