The real estate chain is a fickle process, and often closing dates do not line up perfectly. Sometimes overlapping dates can cause headaches for homeowners who do not have the money to pay for a new home until they have closed their former home. That’s why for these situations we have bridge financing.
Bridge financing acts as a short term financing option that can help a homeowner ‘bridge the gap’ between two mortgages (from their previous home to their new home). One of the best things about bridge financing is that only incurs a small fee, and it can help save a lot of money and stress.
First, your bridge loan cost will be calculated from two parts. The first part is the interest rate, charged on the funds that you borrow. As you probably know, this rate varies between lenders, but a good rule of thumb is to expect to pay the Prime rate plus about 2.5%. The second part of the fee is an administration fee that can also vary between lenders. Expect this to range from $200-$695. You can easily calculate the amount that you can borrow by taking the sale price and subtracting the estimated closing costs and the new mortgage.
The length of a bridge loan depends on the province you are in and the lender you are using, but you can expect a range of 30-90 days. When you go to apply for bridge financing, make sure to have these documents ready:
- A contract of purchase and sale (both your previous home and new home)
- An MLS listing of both your old home and new home
- A current copy of your mortgage statement
- Potentially other documents that your lender may ask for
Once you have the documents ready to go, it’s time to see your Brampton mortgage broker for help applying for bridge financing. This type of loan is an easy solution to a common problem, and with my help, it can be even easier. If you have any questions or want to set up your own bridge financing, contact me today.