Bridge Loan Mortgage

What is it all about

You wanted to buy a new house either because you need a larger house or you have moved to a new city because of your new job and now you found your perfect house. The problem is the house that you have house right now is still out in the market for sale, but lucky you, you have a buyer. The buyer though is still in the process of getting a loan from a lender. Now, you have to close in your new house but you don't have enough cash to purchase it. Now your thinking in taking a bridge loan.

A bridge loan is a loan that is used to finance a property until permanent financing can be obtained. Example you need a short term financing to purchase of a new house until your old house is sold.

This usually happens when the new house that you bought closes before you are able to sell your old house. Home buyers use this type of loan if they don't have enough cash to pay for the new home.

This is a short term loan. You use 80 to 90 %t of the equity of your present home to purchase the new home. So you are paying 2 mortgages to the bank before the finalization of sale of your old home.

Once your current home is sold you pay the bridge loan including the interest and the cost. You can sometimes talk to your bank to repay the loan up to a year.

Disadvantages of this type of loan:

-High interest rate. Around prime plus an additional 3 percent.
-Your set up fees are high.
-If you want to repay up to a year, you may pay six months of interest upfront
-The bank can use both houses, your old and new one, as a collateral against your debt
-If the house you are trying to sold is not sold as something happen, say your buyer had difficulty of getting a loan, your house could be seized by the bank.

So take a bridge loan only if:

-You are able to pay the interest rate and charges
-You can pay the loan immediately.
-You are sure that your old house will be really sold.

Shopping for a bridge loan is very important. Ask your lender questions. Questions such as upfront fees, prepayment penalties, loan terms and options.

Taking a bridge loan without much thought can cost you a lot.