Obtaining Mortgage Bridge Loans

To get mortgage bridge loans, you will have to present your lender with two offers-one for your old home and one for your next home. Typically, lenders will allow you to get financing for 80%-90% of your home equity in your old home in the form of a mortgage. You then use this mortgage to purchase your new home and carry the two mortgages during the overlap period. This period will last until you close on the sale of your current home. As soon as you close on your old home, you use the money to pay off the mortgage bridge loans, plus costs and interest. Some lenders also give you the option of paying off mortgage bridge loans in six months to a year. This extra time can be helpful if you need to save some money first before paying mortgage bridge loans in full.

Costs of Mortgage Bridge Loans

Mortgage bridge loans are a convenient way to bridge the gap between your old and new homes, but the costs can be considerable:

• This is a short-term loan, and interest rates can be fairly high. Typical mortgage bridge loans come with an interest rate that is the prime rate plus 1%-3%.
• Set-up fees can be hundreds of dollars.
• Some lenders require up to six months of interest payments in advance for mortgage bridge loans that structured to give you a year or more to repay them.
• Some lenders of mortgage bridge loans require you to arrange and pay for new mortgages on both your old home and your new one and use both houses as collateral for the loans.
• The worst-case scenario for mortgage bridge loans is if the deal for your old home falls through at the last minute. In this case, if the home serves as collateral for the bridge loan, the bank could seize your home.

The Bottom Line

The bottom line is that you should only consider mortgage bridge loans if you can afford the interest charges and are capable of paying it back as soon as possible. Mortgage bridge loans are a unique type of financing, so each extra day you take to pay it back could cost you hundreds or even thousands of dollars. Weigh these considerations with the benefits of mortgage bridge loans before you apply. Check out our Frequently Asked Questions page if you have any inquiries.