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How a Bridge Loan Can Help You Buy Your Next Home
April 27, 2025 | Posted by: Nicholas Pratile
In today’s fast-moving real estate market, timing doesn’t always work out perfectly. You might find your dream home before your current home sells — and that's where a bridge loan becomes a game-changer.
A bridge loan helps “bridge the gap” between buying your new home and receiving the proceeds from the sale of your existing one. Let’s explore how bridge loans work, their benefits, associated costs, and a real-world example to show how affordable they can be.
What is a Bridge Loan?
A bridge loan is a short-term financing option that provides the funds you need to close on a new home while you’re waiting for your current home to sell. It’s secured against your current property and is typically repaid once your sale finalizes.
Most bridge loans are open loans, meaning there’s no penalty for early repayment — ideal because you usually only need the loan for a few weeks or months.
Benefits of a Bridge Loan
- Buy First, Sell Later: Secure your new home without waiting for your current property to sell.
- Single Move: Avoid the hassle and cost of temporary housing or moving twice.
- Stronger Offers: Make firm, non-conditional offers that stand out in a competitive market.
- Peace of Mind: Sell your current home without feeling rushed, which could help you get a better sale price.
Costs Associated with a Bridge Loan
- Interest Rate: Typically Prime + 2% to 5%. (As of April 16, 2025, the Bank of Canada’s overnight rate is 2.75%, so bridge loan rates might range between 4.75% and 7.75%.)
- Administration Fee: Some lenders charge a setup fee, usually around $250–$500.
- Legal Fees: Additional legal work is needed to register the bridge loan.
- Short-Term Duration: Even though the interest rates are higher than a traditional mortgage, the short time frame keeps costs manageable.
Real-World Example: Daily Cost of a Bridge Loan
Let’s say you need a $600,000 bridge loan for 30 days at an interest rate of 6.75% (Prime + 4%).
- Annual Interest: 6.75% of $600,000 = $40,500
- Daily Interest: $40,500 ÷ 365 ≈ $110.96
- Total Interest Over 30 Days: $110.96 × 30 ≈ $3,328.80
In this example, your bridge loan would cost roughly $111 per day, totaling about $3,329 for the month.
Important: This is a simplified calculation. Actual numbers may vary depending on your lender, exact rate, and loan duration.
When is a Bridge Loan a Good Idea?
- You’ve bought a new home but your current home hasn’t closed yet.
- You don’t want to make your purchase conditional on selling your home.
- You need access to your home equity sooner.
- You’re confident your existing home will sell quickly.
Final Thoughts
A bridge loan can provide flexibility, peace of mind, and the ability to move confidently when buying and selling homes simultaneously. While there are costs involved, many homeowners find the investment well worth it to avoid missing out on the right home.
If you're navigating a home purchase and think a bridge loan might be right for you, let’s chat! I can help you explore your options, calculate potential costs, and guide you through the process.
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