What is mortgage bridge financing or as it is more commonly known as, a bridge loan? Essentially, the mortgage lender is lending you your downpayment and in most cases, your closing costs if you were to purchase a property before selling one.
Most Canadians require the equity from the sale of their home to use as the downpayment and for closing costs for their new home. In some cases, the closing dates don’t line up and you are left with figuring out how to access the equity for your current home to purchase your new one. The requirements are simple. Any lender would require a firm offer on the sale of your home. That means absolutely no conditions outstanding such as finance, inspection, etc.. All conditions on the sale of your home would have to be satisfied leaving a firm offer on the table.
The lender will also require a most recent copy of your mortgage statement along with the Purchase and Sale Agreement (and any waivers to conditions) to confirm the amount of equity you will have from the sale of the property. They take into account any real estate fees as well as closing costs to come up with how much they are willing to lend. With some lenders, they will only lend a certain percentage based on the equity that you currently have.
As for pricing, it varies but expect to pay anywhere from prime +2% to prime +4% with a set up or administration fee of $200-$500. Lenders do not make a lot of interest from these types of transactions so they charge an administration fee to recoup some of their costs. I have seen bridge loans as less as one day to as long as up to 3 months. For the most part, lenders will not register a mortgage for the bridge however, some do so make sure you ask that question as it could mean a significantly higher legal bill to register and then de-register the mortgage when it comes time to sell your home and pay out the bridge.
Why do people request a bridge? For various reasons such as; the purchaser’s of their home cannot move up the closing date, the clients want to have time to move from one place to the next without a rush, or the clients wish to renovate prior to moving in.
The bridge loan (mortgage) is offered and completed by the same lender that is providing the mortgage for the purchase of the new property.
There is a misconception that you can obtain a bridge loan for your purchase if you have not yet obtained an accepted offer on the sale of your current home – this is false. There has to be a firm offer, no exceptions.
Please reach out should you have any questions or concerns. We would be pleased to assist.
Kim Gibbons, Mortgage Superhero ®
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Your Toronto Mortgage Broker