Recently, we've been asked a few times about Bridge Financing. So I have asked a trusted Mortgage Planner, Matt Robinson from Dominion Lending Centres to help us explain how Bridge Financing works. If you have any questions, please feel free reply to this email, or see below the article for Matt's contact info.
It’s unlikely that the first home you buy will be the home you stay in forever. At some point, you may wish to sell and buy a new home. Sometimes clients find themselves in a situation where the closing date for the home they’re purchasing is before the closing date of the home they’re selling. This is where bridge financing comes in.
Bridge financing is a tool that can allow a borrower to complete & take possession of a new home prior to completing the sale of their existing home.
As the primary trigger for bridge financing is a gap in dates between the purchase (of the new property) and the sale (of the current property), there must be a firm sale agreement (subject free) on your existing residence to secure bridge financing approval.
Most lenders will provide bridge financing with this subject free offer on your existing home to “bridge” that timeline gap.
To provide you with an example, let’s say you are purchasing a $750,000 home and you made a $25,000 deposit, but you have $150,000 of equity in your existing home you want to use as a down payment. The issue being your purchase completes April 15th and the sale of your existing home does not complete until June 10th. In this situation you would need to bridge $125,000 ($150,000 down payment - $25,000 deposit = $125,000 bridge financing) for 56 days.
Bridge financing often comes at rates similar to a line of credit in the Prime plus 2.00% - 3.00% range. While the interest rate on the bridge is higher than a typical mortgage rate, it will only be charged for a short amount of time.
If you find yourself in a situation where you don’t have a subject free offer on your home, then you would need Interim financing. Interim financing is a more expensive route and a topic for another day.
Matt Robinson, AMP, MBI | Mortgage Planner
Dominion Lending Centres - A Better Way
201-2600 Gladys Avenue, Abbotsford, BC V2S 0E9
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