A bridge loan is an emergency or temporary loan utilized until such time that you obtain the permanent financing for a property that you are buying. It enables you to meet ongoing obligations by supplying instant cash flow, typically with relatively high interest rates. Bridge loans are usually for a short term, sometimes up to a year, and are typically backed by some type of collateral. This loan can be used to buy a home before your old house is sold and you get the proceed from the sale or for a variety of other reasons where you are waiting for your equity to turn to cash. The terms of this loan are generally very specific and have a bearing on the value of the loan itself as well as on the interest rate and the amount of time the loan is valid for.
Bridge loans can either be secured, meaning that you are requiring a specific amount of collateral to secure the loan, or unsecured, which means that you have nothing securing the loan.
Before obtaining a bridge loan, you should review your credit score to determine if you would qualify. Some lenders will require you to at least maintain a decent credit score, and others will look more closely at your credit report to determine if you’d qualify. However, regardless of your credit score, most reputable lenders will be reasonable about your credit history. It is best to speak with a mortgage broker to get pre-qualified and find which lender will accommodate your financial situation.
For those who qualify, a mortgage broker can assist you in filling out all of the paperwork, as well as working directly with the lender to get you approved for the bridge loans. However, some of these services may charge a sum of fees for their assistance.
There are several sources to obtain bridge financing in Canada. Many people have used private lenders to obtain a bridge loan for the purchase of a new home, but there are other Schedule I banks and alternate lenders available when you work with a mortgage broker. Private lenders in Canada have a larger network of lending institutions than do mortgage and loan lending, which make their lending more competitive and accessible to borrowers. Private lenders might offer higher interest rates than banks but they have more flexible lending requirements to accommodate your specific financial situation. A mortgage broker is best positioned to help you find the best mortgage product available from many lenders in Canada.
Are there any limitations to the type of property?
As of today, there are no such limitations.
What matters more is that there is enough equity in the house you’re selling to cover the down payment for the house you’re buying.
This product is valid for a principal residence, a second home, and rental property.
Will this product work for pre-construction properties too?
A bridge loan can work for pre-construction property too.
A bridge loan can come in handy to help pre-construction buyers who need an additional down payment on top of the deposit structure to close on their property.
It also works the same way for resale properties and preconstruction properties.
Speaking of pre-construction properties, those who are interested in pre-construction financing, you want to check out the video below that unpacks in detail about 100% pre-construction financing.
Is this product available from certain lenders only?
A bridge loan is available from the Schedule I banks, alternate lenders, and as well as private lenders.
But each lender has different lending requirements.
When you work with Jermaine Hinds, a premier mortgage broker at Matrix Mortgage Global, you’re working with all of their lenders.
Their bridge loan offers flexibility up to 365 days before you sell your old house, and they don’t require income and credit checks. The lenders do check for the equity in the property to qualify your application. Plus, a few other conditions.
You will need to have,
- A firm purchase and sale agreement for the house that you are selling,
- A firm purchase and sale agreement for the house that you are buying,
- A statement of adjustments from your lawyer.
How do you calculate the borrowing cost for a bridge loan?
The borrowing cost for a bridge loan is calculated based on how many days you borrow, and the interest on the amount borrowed.
This can be calculated in advance so you can be sure that there is enough money left to pay back the bridge loan in full.
What if due to an unexpected situation, a buyer needs to borrow longer than planned and there is not enough money left from the proceeds?
This scenario could happen in case your buyer couldn’t close as scheduled, and as a result, extending the time you need to borrow on the bridge loan.
In that case, you still have other borrowing options to help you pay off the bridge loan.
At that time, you could consider a second mortgage on your new house to get the amount you need to pay off the bridge loan.
You might also want to find out from your real estate lawyer if your buyer can compensate you for the unexpected additional borrowing cost.
Jermaine Hinds, Mortgage Broker
Jermaine Hinds is a licensed mortgage broker for mortgages across Canada.
Your mortgage options are powered by Matrix Mortgage Global (Brokerage Lic. #11108). This means you gain access to more than 100 different lending partners who are ready to offer you various mortgage solutions, including mortgage renewals, refinancing, second mortgages, home equity loans, bridge loans, and other specialized mortgage products.
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