In real estate transactions, a bridge loan is a short-term financing option designed to provide temporary funds while a borrower transitions from one property or financial arrangement to another. It is commonly used when a buyer needs to purchase a new property before selling an existing one, allowing access to equity tied up in the current property. If you want to use your equity in your home, using a bridge loan is a way to do this without selling your current home first, since selling your home before buying a new one can be challenging. Finding a place to live while in between homes can be difficult. Another option is to make offers on new properties that are contingent on the sale of your current property, but contingent offers may not be as attractive to sellers.
Bridge loans typically have higher interest rates and shorter repayment periods than traditional mortgages, reflecting their temporary nature and increased risk to the lender. Repayment is usually expected once the borrower sells the existing property or secures long-term financing. In real estate contracts, bridge loans can help facilitate timely closings, but they also carry risks, including potential financial strain if the anticipated sale or refinancing is delayed.
