What is bridge financing?January 15, 2013
You may have heard the term “bridge financing”, but what does it really mean? Bridge loans are short-term loans that are used when purchasing a new home to cover the gap between two different closing dates. If you’re buying a home that is closing in 2 months for example, but your current home has been sold with a closing date of 3 months, you will need a loan to cover the gap for one month.
Two types of bridge financing are available:
This is used when you have an exact date that the loan will be repaid (typically when you know the closing dates of your real estate transaction). Interest rates are generally lower with this type of loan and the risk is lower for the lenders.
When you’re unsure of the exact date of repayment, this type of bridge loan is available. You may experience higher interest rates using an open bridge loan, as the risk is slightly higher for the lender.