Sometimes referred to as swing loans, bridge loans provide short-term financing that can be used during a transitionary period, like when you’re selling your current home and buying another one for example. In other words, if you need to close on a new home before selling your existing home, a bridge loan effectively allows you to borrow your down payment for the new home since the timing of the purchase doesn’t allow for using your home’s equity.
The most common way to use a bridge loan is for a down payment of a new home. When using a bridge loan for a real estate transaction, you’re essentially borrowing the equity of your existing home without having to wait to sell it first.
Although bridge loans can be structured in a variety of ways, most home buyers pay off their bridge loan from the sale of their existing home. In most cases, bridge loans must be repaid within 12 months or less and commonly have a balloon payment that is due at the end of the term, which is made once your existing home sells.
Along with being able to use your home’s equity without selling it first, bridge loans also give home buyers an advantage at the negotiating table. When purchasing a new home, you’ll be able to remove the contingency to sell and move forward with a purchase if you’ve secured a bridge loan.
Taking out a bridge loan may sound like a great option but it does carry some risk. If your existing home doesn’t sell right away, you’ll be forced to make two mortgage payments. In addition, fees and percentage rates may be higher than expected with bridge loans as well. So always consult a mortgage professional to see if a bridge loan is the best solution for your individual situation.
The interest rates you see here are an average of the published annual percentage rate with the lowest points from a sampling of major national lenders. Contact us about what your interest rate might look like or click below to learn more about how interest rates are calculated.