Bridge Financing in Ontario
Key Takeaways: Bridge financing is a short-term loan that covers the gap when your new home’s closing date falls before the sale of your current home. The loan bridges the down payment shortfall for a few days or weeks. Rates are typically Prime + 2% to 4%, and costs depend on the loan amount and number of days bridged. You need firm sale and purchase agreements in place to qualify. Some lenders include bridge financing at no extra cost if the gap is under 30 days.
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Buying and selling a home at the same time is a juggling act. In a perfect world, your sale and purchase close on the same day and the funds flow seamlessly from one transaction to the other. In reality, closing dates don’t always align. When your purchase closes before your sale, you need the down payment money before you’ve received it. That’s where bridge financing comes in.
What Is Bridge Financing
Bridge financing is a short-term loan that “bridges” the gap between the closing date of your new home purchase and the closing date of your existing home’s sale. It provides the funds you need to complete the purchase while you wait for the sale proceeds to arrive.
Think of it as a temporary advance on the money you already know you’re getting. The loan is repaid in full once your sale closes and the proceeds are released by your lawyer.
When You Need Bridge Financing
Bridge financing is needed when your purchase closes before your sale. For example, you’re buying a new home that closes on March 15, but your current home doesn’t close until April 5. You need $180,000 from the sale to use as a down payment on the purchase. Since the money won’t arrive until April 5, you need a bridge loan of $180,000 for 21 days.
If your sale closes first, you don’t need bridge financing. The sale proceeds are available before the purchase, so there’s no gap to bridge.
How Bridge Financing Works
Same lender requirement. The lender providing your new mortgage is typically the one that provides the bridge loan. You can’t get a mortgage from one lender and bridge financing from another. This means your bridge financing is arranged as part of your overall mortgage application.
Firm agreements required. Both your sale and purchase must have firm (condition-free) agreements in place. The lender needs to verify that the sale will generate enough equity to repay the bridge loan.
Lawyer coordination. Your lawyer plays a critical role, preparing a draft ledger from your sale showing the net proceeds after all costs (existing mortgage payout, real estate commissions, legal fees) to confirm there’s enough to bridge.
Repayment. The bridge loan is automatically repaid when your sale closes. The sale proceeds go to your lawyer, who uses them to pay off the bridge loan, and any remaining funds are forwarded to you.
Costs and Rates
Bridge financing costs include interest on the loan amount for the number of days bridged, plus an administrative fee. Rates are typically Prime + 2% to 4%, and the admin fee ranges from $200 to $500 depending on the lender.
Here’s an example: a $200,000 bridge loan at 7.5% for 30 days would cost approximately $1,233 in interest plus a $500 admin fee, for a total of around $1,733. For a 14-day bridge, the interest drops to roughly $575 plus the fee.
Some lenders include basic bridge financing at no extra cost when the gap is under 30 days and you’re obtaining your new mortgage through them. This is one of the many things we negotiate on your behalf.
Calculate your specific bridge cost using our bridge financing calculator.
Requirements to Qualify
To obtain bridge financing, you’ll need a firm (condition-free) agreement of purchase and sale for your new home, a firm (condition-free) agreement for the sale of your existing home, an approved mortgage for the new property through the same lender providing the bridge, and a draft sale ledger from your lawyer confirming sufficient equity to repay the bridge.
If your sale is conditional (for example, subject to a home inspection), the lender won’t approve the bridge until all conditions are waived. This is why it’s important to work with your realtor and broker to coordinate timelines carefully.
Need help with bridge financing? Contact us or call 905-455-5005. We’ll make sure the timing and financing work together smoothly.
FAQ’s – Bridge Financing
Q: How long can a bridge loan last?
A: Most bridge loans cover a gap of 1 to 90 days. Beyond 90 days, it becomes increasingly difficult to arrange through traditional lenders. If you need a longer bridge, private lending may be an option, though at a higher cost.
Q: Can I get bridge financing without selling my current home?
A: Traditional bridge financing requires a firm sale agreement. If you haven’t sold yet, you’ll need to explore other options such as a HELOC, a second mortgage on your current property, or qualifying for the new mortgage without the sale proceeds as your down payment source.
Q: Is bridge financing included in my mortgage payment?
A: No. The bridge loan is separate from your mortgage. Interest and fees are typically deducted from the bridge advance or from your sale proceeds when the sale closes. It doesn’t affect your regular mortgage payments.
Q: What if my sale falls through after the bridge is arranged?
A: This is why lenders require firm agreements. If a sale falls through after conditions are waived (which is rare), you’d need to find another buyer or arrange alternative financing to repay the bridge. This is a risk to discuss with your broker and lawyer before proceeding.
Q: Can I arrange bridge financing myself?
A: Bridge financing is arranged through your mortgage lender, so it’s part of the mortgage application process. Your broker handles this as part of the overall deal structure. There’s no separate application or additional fee to us.