Buying and selling a home can be a complex process, especially when the timing between closings doesn’t align perfectly. While the concept remains the same, we’ve updated this blog to make it more relevant to the current real estate landscape in 2023.
What is Mortgage Bridge Financing?
Mortgage Bridge financing is a financial tool designed to assist homeowners in navigating the transitional period between selling their current home and buying a new one. Suppose you’ve listed your existing property for sale and hope to use the proceeds as the down payment for your new home. However, if the closing date of your new home is BEFORE the sale of your existing property, you may find yourself in need of additional funds to complete the purchase as your down payment is tied up in the equity of the sale. And of course, proceeds of the sale are not made available to you until the day of closing (sometimes the day after). This is where bridge financing comes into play.
How Does Mortgage Bridge Financing Work?
When you seek bridge financing, you secure a short-term loan to cover the down payment and closing costs of the new property. This temporary loan allows you to complete the purchase without waiting for your existing home to sell. During this period, you’ll make monthly payments (based on a per diem) on the bridge loan until your existing property is sold. Many banks offer bridge financing for up to 6 months, while others can make exceptions for up to 12 months.
It’s essential to note that lending institutions will typically secure the loan against both your existing and new properties until the existing property is sold (also referred to as a collateral loan). This ensures the lender has a level of security in case the sale doesn’t go as planned.
Requirements for Mortgage Bridge Financing
To qualify for bridge financing in 2023, borrowers must meet certain requirements:
Accepted Purchase Agreement: You need to provide a purchase and sale agreement for the new property. This agreement confirms that your offer to purchase the property has been accepted by the seller.
Firm Sale Agreement for Existing Property: You must have a firm sale agreement for your existing property. A firm agreement means that the sale is not conditional on financing, inspection, or other clauses.
Interest Rates for Mortgage Bridge Financing
Bridge financing typically comes with terms like an open mortgage, meaning it is a short-term solution. Since bridge loans are intended for temporary use, they carry higher interest rates compared to traditional mortgages (prime +). However, given the short duration of the loan, the overall interest costs are often manageable.
Why Consider Mortgage Bridge Financing?
In today’s fast-paced real estate market, bridge financing remains a valuable option for several reasons:
Competitive Real Estate Market: In competitive housing markets, securing a new property can be challenging. Bridge financing allows you to move quickly and secure your dream home without waiting for your existing property to sell.
Flexible Timing: Bridge financing offers flexibility in timing the purchase and sale of homes, giving you better control over your move.
Avoiding Temporary Housing: With bridge financing, you can avoid the inconvenience and cost of temporary accommodation arrangements between selling your old home and purchasing a new one. This can be very inconvenient for everyone, but especially for those with young children.
At Canadian Mortgage Services, we understand that every homeowner’s situation is unique. Whether you’re considering bridge financing or other financing solutions, our experienced team can help you find the right option that fits your needs. Contact us today to learn more about our range of financing solutions – (905) 455-5005