What’s Bridge Financing and what do Bridge Loans Cost?
Many real estate transactions require bridge financing. This occurs when the closing date of the home you are selling may not match the date of the home you are buying. In fact you may not receive the proceeds from the sale until after you want to purchase. With a “firm” sale of your home you can usually “borrow against the sale” of your home. This is what is referred to as bridge financing or obtaining bridge loans. This financing (the bridge) is advanced and then paid back once the sale of your own home closes at a later date. It is replaced by the new and “final” mortgage.
Bridge financing loans are often necessary because of conflicting interests on the part of buyers and sellers with regards to their own timing. This is especially the case when the sale of other homes may be involved. It also occurs when closing dates of home sales do not match by design. In some cases home buyers want to take possession of the home they have purchased prior to the closing of their own home sale so that they can perform renovations before moving into it.
The cost of bridge financing varies. There is certainly mortgage interest cost – similar to regular mortgage loans. There may also be a set up fee, which is sometimes negotiable, depending on the circumstances.
Article courtesy of iREx.ca