Everything You Need to Know about The Bridge Mortgage
What is a Bridge Mortgage?
A bridge mortgage is a type of short-term loan that is used to bridge the gap between the purchase of a new property and the sale of an existing one. These types of mortgages are often used by real estate investors, developers, and homeowners who are looking to purchase a new property before selling their current one. The loans are usually secured by the borrower's existing property and provide financing for the purchase of a new property. Bridge mortgages are typically short-term loans with terms of up to one year.
How Does a Bridge Mortgage Work?
When a borrower takes out a bridge mortgage, they use the equity in their existing property as collateral. Most private lenders will typically lend up to 70% of the appraised value of the property, minus any outstanding mortgages or liens. The borrower then uses the funds from the bridge mortgage to purchase the new property, with the expectation that they will sell their existing property and repay the loan within a short period of time.
Benefits of a Bridge Mortgage
There are several benefits to using a bridge mortgage, including:
Allows you to purchase a new property before selling your existing one
Provides short-term financing that can be repaid quickly
Can help you avoid the need for a home equity line of credit (HELOC)
Risks of a Bridge Mortgage
While there are benefits to using a bridge mortgage, there are also risks involved, including:
Higher interest rates than traditional mortgages
Short repayment period, which can be risky if your existing property does not sell quickly
Potential for default if you are unable to sell your existing property
Conclusion
Bridge mortgages can be a useful tool for real estate investors, developers, and homeowners who are looking to purchase a new property before selling their existing one. However, it is important to weigh the benefits and risks before deciding if a bridge mortgage is right for you. If you are considering a bridge mortgage, it is recommended to speak with a qualified mortgage broker or lender to determine if this type of financing is appropriate for your specific situation.