Bridge Financing
The short version
Bridge financing is a short term loan that covers the gap when you buy a home that closes before the one you are selling. Your down payment is tied up in the old property until it closes, so the lender advances those proceeds early and is repaid the moment the sale completes. Lenders will normally bridge for up to about 90 to 120 days and will want a firm, unconditional sale agreement on the existing home before they commit. You pay interest for the days you use the money plus a setup fee, at a rate above your mortgage rate. Because the term is so short, the total cost is often a few hundred to a couple of thousand dollars rather than anything dramatic. Approvals are on approved credit.
Why would you need it?
Because sale and purchase closings rarely line up neatly. You find the house you want, it closes on the tenth, and your buyer cannot close on yours until the twenty fifth. Your down payment is sitting in the old house for those fifteen days. Bridge financing covers exactly that window.
The alternative is trying to force both closings onto the same day, which sellers and buyers on the other side of each deal may not agree to, and which makes moving day genuinely awful. Paying for a two week bridge to get a sensible gap is money well spent by most people's reckoning.
What do lenders require?
One thing above all: a firm sale on your current home. Firm means every condition has been waived and the deal is binding. The lender is lending against money it can see arriving, so a conditional sale does not qualify.
Beyond that, expect the lender to want a copy of both agreements of purchase and sale, a mortgage statement on the property you are selling, and confirmation of the closing dates. If your new mortgage is already approved with that lender, the bridge is usually a straightforward addition to the file rather than a fresh application.
Not every lender offers bridge financing, and the terms vary. We check this when placing your mortgage, because finding out afterwards that your lender does not bridge is an unpleasant surprise.
How much can you bridge, and how is it worked out?
Roughly, take the sale price of your current home, subtract the mortgage being discharged, and subtract selling costs such as the real estate commission and legal fees. What remains is your net proceeds, and that is the ceiling on what a lender will bridge. In practice you only bridge what you actually need for the down payment and closing costs on the purchase.
Run the numbers on both properties before you commit to closing dates. Our calculators will help you see the purchase side, including land transfer tax, which in Toronto is charged twice because the city levies its own on top of the provincial one.
What does it cost in practice?
Two components. Interest on the bridged amount for the days it is outstanding, charged at a rate higher than your mortgage rate. Then an administration or setup fee for arranging it.
Because the term is measured in days rather than years, the dollar amount is usually modest. People often brace for a large number and are relieved. That said, the fee is fixed whether you bridge for three days or thirty, so very short bridges are proportionally expensive.
We do not publish rate figures on this site, so we will give you the actual cost in writing for your specific dates and amount rather than a range that may not apply to you.
What if your sale is not firm?
Standard bridge financing is off the table. That does not mean you are stuck, but the options change.
- A private lender may advance against the property without a firm sale, at a higher cost, treating it as a short term equity loan.
- A second mortgage on the home you are keeping, if you are not actually selling but need funds for a purchase.
- Renegotiating the purchase closing date, which is free and is the first thing to try.
Where people get caught out
- Assuming the bridge is automatic. It is a separate approval. Raise it with us before you sign the purchase agreement, not after.
- Waiving conditions on the sale too casually. Your bridge depends on that sale completing. If the buyer's financing collapses, you own two homes.
- Forgetting the lawyer's role. Your lawyer handles the payout and discharge on closing day. Using the same lawyer for both transactions makes the whole thing considerably smoother.
- Not budgeting for the overlap. You carry two sets of property taxes, utilities and insurance for the bridge period, on top of the interest.
How we handle it
We raise bridge financing at the pre-approval stage rather than at the end, because whether a lender bridges and on what terms is a genuine factor in choosing where your mortgage goes. If you are planning a move this year, start with a pre-approval and tell us your likely timing. It costs nothing and it prevents the scramble.
Common questions
Do I need a firm sale on my current home to get bridge financing?
For standard bridge financing from a bank or credit union, yes. The lender is advancing money against proceeds it can see, so it wants a firm and unconditional sale agreement. Without one, the options move to private lenders and the cost rises.
How long can a bridge loan run?
Most lenders bridge for up to about 90 to 120 days, which comfortably covers a normal gap between closings. Longer gaps are possible but usually move you to a different type of lender.
How much can I bridge?
Broadly, the equity you are pulling out of the sale, meaning your sale price less the mortgage being paid off and selling costs. The lender will not advance more than the proceeds it expects to receive.
What does bridge financing cost?
Interest on the bridged amount for the days you use it, plus a setup or administration fee. Because the term is short, the total dollar cost is often smaller than people fear, though the rate is higher than your mortgage rate.
What happens if my sale falls through while I am bridged?
This is the real risk. You own two properties and owe on both. Lenders manage it by requiring a firm sale, and you manage it by not waiving conditions carelessly on your own sale. If it happens, talk to us immediately, because there are options but they get worse with time.
Is bridge financing arranged with my new mortgage lender?
Usually. It is simplest when the lender funding your purchase also provides the bridge, since they already hold the file. Not every lender offers it, which is one thing we check when placing your mortgage.