Bridge loans are essentially a type of short term loan, which “bridges” the financial gap between two transactions taking place on different closing dates. Still confused? Let’s walk through a typical example of a residential bridge financing loan, and we can clarify exactly how it works:
You are currently a homeowner at 12 Oneway Avenue, and have just accepted an unconditional offer from a buyer for your current property, which has a closing date of September 18th. The purchase price was $700,000.00, and after paying off your mortgage, closing costs, and other costs such as moving or renovations, your net proceeds will be approximately $300,000.00.
You’ve already placed an offer on a new property at 32 Ridgeway Crescent for $500,000.00, which is accepted, and your new property’s closing date is August 29th, 20 days before the closing date of your existing home.
On your purchase, you’ve made a $25,000.00 (5%) deposit, and have decided to use $300,000.00 of your net proceeds from your sale towards your purchase. You’ll need that $300,000.00 on your closing date (August 29th), however you won’t receive the proceeds from your sale until September 18th. What do you do?
|Current Property (Sale)||New Property (Purchase)|
|Sale Price||$700,000.00 –||Deposit||$50,000.00 +|
|Mortgage Amount||$300,000.00 –||New Mortgage||$150,000.00 +|
|Closing Costs & Other||$100,000.00||Net Proceeds Used||$300,000.00|
|Net Proceeds||= $300,000.00||Sale Price||= $500,000.00|
This is where bridge financing would be used, as you would take out a short term $300,000.00 loan for the 20 interim days between your purchase closing (August 29th) and your sale closing (September 20th). Although this situation is quite common, as exact closing dates aren’t always possible, such financing can be difficult to obtain from a bank, especially if the gap is greater than 30 days.
Need an alternate, short term loan option? Tembo Financial can help! Tembo offers this unique service to homeowners in Ontario and the GTA. You could receive your money in as little as 48 hours with no credit check and no appraisal* for expenses that matter to you. Don’t wait, start today!
*Subject to Qualification