Bridging a mortgage is a popular solution for many home owners and who find themselves in a specific type of circumstance.
As many home owners know when it comes to the process of selling and buying homes, it can be overwhelming. One of the many obstacles home owners face, is trying to align the closing dates of their existing home (sale) and that of their new home (purchase). However, this is an ideal situation and more often than not, the closing dates can be days, weeks and even months apart. This can be problematic for those who are relaying on the proceeds from their sale to contribute to the down payment of the purchase. Of course, this only applies in the circumstance that the purchase date is closing prior to the sale of your existing home. In any case, the solution would be to convert the available equity of the existing home and transferring the funds to the new home in the form of a down payment. The process of bridging a mortgage, would allow you to complete the purchase of the new home without having to wait for the sale of your existing home to occur prior to the purchase. Bridging a mortgage works by essentially accessing the proceeds of the sale in the form of a mortgage which is expected to be paid back immediately upon the sale of that home. Since the mortgage is only intended to be used for a very short period of time, the mortgage itself is like an open mortgage. Like many open mortgages, the interest rate is typically higher then closed mortgage because the banks would not be expecting to make a profitable return over the course of say 5 years (as they would hope).
The requirements for bridging a mortgage or obtaining bridge financing are essentially the same as any other mortgage, with the addition of the following:
1. The homeowner must have a firm offer on the sale property
2. The amount of the bridge financing cannot exceed the available equity in the home being sold
One other thing that you must take into consideration is your ability to carry two mortgages for the short period of time that you are. In other words, you would need to show that you can carry the mortgage on the purchase property as well as the bridge financing placed on the sale property. Your debt ratios still need to be at an acceptable level in order for you to successful obtain this type of mortgage.
If you would like to learn more about the steps involved in bridging a mortgage or have any questions on the matter, please feel free to contact us today at 905.455.5005.