Mortgage, Money and Dream – Our thoughts on Canadian Mortgage Market
Call Us: 416-930-1225

Mainly used in commercial lending Bridge Financing has it’s own niche. Although it is mostly a business tool, it does have a fair bit of use in residential sector as well. A number of lenders offer bridge financing but they fall short in providing details on these types of loans. We use bridge financing or similar methods in our daily life. When you go to your friend before payday and borrow $10.00 – that is a case of bridge financing.

It is essentially – “When you borrow money for a short period of time – promising a pay-back once the anticipated fund comes in”

Businesses often arranges bridge finance before IPO (Initial Public Offering). A homeowner or a home buyer may also face situation where he/she needs a bridge financing.

An ideal situation is when you sell your existing house and buy a new one – but their closing dates are not the same. The buying happens before the selling. At that time you need a bridge financing. You do not really need the money for a long time – only a short period.

There are mainly two types of Bridge Loans – 1) Closed – with a fixed  payoff date and 2) Open – where the exact payoff date is uncertain. Both has their own risks associated with them and may cost you differently.

The main points to note are –

  1. Lawyer fee is usually more than regular loans.
  2. You have to produce more papers to the lender.
  3. There may be a setup fee involved.
  4. Interest rates are higher.
  5. Interest rates may be payable upfront.
  6. Needs a collateral.
  7. Anticipated fund may get into trouble.

You should also look at other options like obtaining a Secured line of credit, before you opt for a bridge financing.