In a perfect world, the closing date of your existing home coincides with the closing date of the new home you have purchased. This isn’t always the case, however. When your move in day doesn't align with move out day, bridge financing helps you with the situation.
First of all, don’t panic. It’s fairly common for lenders to hear requests for bridge financing. So what exactly does it entail? It is essentially a loan that helps you cover the down payment on the new place, and all of the other costs that go along with the sale, from legal fees to real estate agent commissions, while keeping up your mortgage payments on your existing home until the new owners take over.
A lender will look for certain criteria before they consider giving you a bridge loan. There must be proof of the purchase agreement and the sale agreement on the home you are buying and the one you are selling. Be aware that this technically a short-term loan, typically for a few days, or weeks, but can be as long as 90 days.
As to be expected, you will pay a charge to arrange bridge financing, usually about $200 to $500 paid to the lender. It’s worth asking the bank that's arranging your new mortgage to waive or reduce this administration fee. Also keep in mind that the rate charged on the bridge loan can be two to three per cent above the bank's prime.
Depending on the lender, the bridge loan amount and the length of time will require a lawyer to register the loan on title. If this is the case, a borrower may incur additional legal fees. Other lenders simply extend the bridge loan as a promissory note, which does not need to be registered on title.
It is good to know about the option of
bridge financing as you plan your next move!
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