What is a Bridge Finance? Bridge Mortgage, Bridge Loan Example, Bridge Lending Companies – All Covered

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As a homebuyer, you must accumulate at least 20% of the purchase price in a down payment. For most average Canadians, this is the hardest part. Look at the option of bridge finance – a form of short-term debt financing that can help you achieve your dreams.

Bridge financing is a short-term loan. It helps homebuyers. Several companies in GTA offer bridge loan.

Meaning of Bridge Finance/Bridge Loan

Have you ever felt short of cash? What do you do in crunch times? Maybe, take a credit card loan, or open a credit limit with a bank.

– Bridge financing is not much different and is often considered one of the easiest ways to get money.

It is a temporary source of finance. You usually take a bridge loan to:

• Purchase an asset (house, car, etc.) or
• Pay off an existing liability. For example, property taxes due, pending credit card bills, heating expenses, etc.

Commonly, the term bridge financing or bridge loan is associated with homebuyers. They usually assume such kind of financing until a long-term debt option is secured. The average tenure of a typical bridge loan is between 6 months to 1 year.

When you take a bridge loan to buy a house, it is known as “Bridge mortgage”.

Bridge Financing Example

Assume that you are eager to buy a new and better house. You go home scouting every day. And, finally, you got your eyes set on a house that you want to purchase – your dream house.

Unfortunately, you are short on budget and do not have money for making a down payment. Thus, you called a financial advisor and he told you to get a bridge loan.

Now, here is what you did:

• You took a bridge loan from a lending company
• In lieu, you offered your existing house as a collateral
• The tenure of your loan is 10 months
• You used the temporary cash to make a down payment for your new house and secured the deal
• This way, you got ten extra months to arrange for long-term funding

Mostly, homebuyers use bridge financing to buy a new house before selling their existing one. However, that’s not a hard and fast rule. All banks need is collateral or security, which covers their lending risk. Thus, if you can offer anything of worth equal to your existing house – the lenders will be happy.

Pros of a Bridge Loan

• Fast Funding:
  • You can get approval for a bridge loan even on the same day
  • The process is easier, and you can even expect money in your account within 2 weeks of obtaining approval
  • On average, the closing time for a bridge loan is between 2 to 4 weeks
• Short-Term:
  • The tenure of most bridge loans varies from 6 months to 12 months
  • However, there are organizations, like iBorrow, that offer a loan term, which varies between 6 months and 48 months
  • Thus, you are not exposed to interest rate risk

Cons of a Bridge Loan

• High-Interest Rate:
  • In comparison to the traditional form of long-term debt financing, a bridge loan is expensive
  • Usually, the lowest bridge financing rates that you can access are 200 basis points above the prime rate set by the Bank of Canada
  • You can expect the interest rate to be between 6% and 8.50% p.a.
• Too Risky:
  • Taking a bridge loan will be successful only if you can secure a permanent and long-term funding
  • If that doesn’t happen, you might lose your collateral.

Bridge Financing Companies in Greater Toronto Area (GTA)

All the major Canadian banks offer you the option of Bridge financing. Alternatively, you can even tap the financial institutions and local lenders for competitive interest rates and less strict eligibility.

List of top local lenders in the GTA offering bridge financing:

 Besides the above-mentioned lenders, these major banks also offer bridge loans:

• CIBC
• Bank of Montreal
• TD Bank
• HSBC
• RBC
• Scotiabank
• Tangerine
• TD Canada Trust

News of GTA is a hyper-local news-based agency covering all the latest developments and happenings in the Greater Toronto Area. We support independent journalism. For more such financial information, keep browsing our Money section.