Living in your dream home can now become a reality! But, before selling your current home, you can arrange funds for your new property. It’s possible with the help of a Bridge loan Canada now. Bridge Financing is a short period loan given by a mortgage lender that bridges the gap between the closing dates of both properties. The amount is payable to the lender whenever the selling price of the current home is available.
Why do you need a bridge loan?
If you buy a new home before selling your current one, you might need money for a down payment for the new house. As you know, it will be tied with the equity of your current house. Bridge financing comes into action here. You can apply for a bridge loan until you receive cash from the sale of the old home. For example, if you were selling a house within 60 days in local Ontario and purchased a house in Toronto. You need to pay the amount for the new house in 30 days. Here you can apply for a bridge loan in Canada to cover the 30 days gap in cash flow.
How is Bridge Financing calculated?
Bridge loan= Purchase Price – (Deposit +Mortgage Amount)
Bridge loans Canada are priced at the same rate as an open mortgage or the cost of a personal line of credit. The interest rate is certainly higher than the mortgage rate. Considering the short-term period, the interest rate is almost insignificant. The current interest rate is Prime + 2% or 5% effective rate. Typically, lenders charge an administration fee between $200 and $500 to set up a bridge loan.
How Bridge loan in Canada works?
After analyzing the typical situation, most of Canada’s banks offer bridge loans. However, some complications are there that might slow down the process. Help yourself with a lender that matches your requirements. For example, let’s say the closing date of your current home is 45 days, and the closing date of a new home is 30 days. A bridge loan can cover the 15 days gap for you, but before that, you need to have a firm sale on your current property. You will also have to submit the sale agreement from the current home and the purchase agreement from a new home to the lender. Once you sold the asset and your pending amount arrives, you will have to pay the lender back the bridge loan amount.
Bridge mortgages are ideal for a variety of financing strategies. But it is not easy to find and negotiate the complex home bridge loan in Canada. Moreover, only a few lenders offer bridge financing as they don’t make much interest money due to short term nature loans.
Factors you need to consider before applying for a bridge loan:
The actual amount being bridged is the “down payment” figure required to secure the new mortgage, NOT the “actual mortgage” amount.
Your current asset must be sold unconditionally. There must be a firm deal and no special conditions.
A bridge loan is part of the overall loan offering of the new property.
Interest is charged daily and is nearly Prime + 2% or 4%.
Most lenders allow bridge financing up to $250,000 for 120 days. Amount bigger than this amount and taking more time will require the lender to register a lien on the current property. You may be charged additional legal fees in the process.
You need to submit the waiver on the sale and purchase agreement. Contact an advisor to get details on other required documents.
Benefits of having a Bridge loan in Canada:
Flexibility – It allows you to close your purchase deal before you sell the current house. It minimizes your hassles to arrange to fund. Once you sell your home, you can pay the bridge loan with that money and also add interest rates (if any).
Faster process – applying and receiving bridge loans is much faster than other types of loans. People short term need for money benefits the system.
Buy a house without restrictions – A seller would never sell his house to a buyer with no down payment. No one can risk the insufficient funding before signing the paper work. Bridge loan cover this gap and secure the down payment.
No monthly payments – You won’t have to worry about the monthly expenses and interests. Bridge loans don’t have monthly payments you have to pay the amount whenever you sell your current property. However, you need to take care about the overall payment time period. There is no monthly interest endured if you are paying the amount on time.
Reduce the risk – Home buyers have now the option to purchase a home without risking the old one. This secures the time and uncertain risks to the seller of the home. If you have a bridge loan in hand, you may close a deal without offering a solid purchase.
Poor creditors can also apply for the loan – A person with a low credit score may also apply for bridge loans in Canada without any hustle. Use your current home equity to back up the loan, and the risk considerably decreases.
Eligibility to apply a bridge loan in Canada:
Any resident of minimum age 21 years and not more than 70 years can apply for a bridge loan. He/she should be the legal owner of business or property. The amount of loan is based on repayment capability of borrower. An individual with high credit score can apply for loan and can get as high as 80% of the money.
Take the bridge loan or not: How to decide?
The most obvious answer is YES! It’s the best choice that you can use as an alternative. When a bank can’t give the loan quickly or arrange the funds, a bridge loan is a perfect fit for you! Bridge loans don’t take much time and high-income standards. Now the decision comes down to the risks and cost of the loan in the end. Ask your queries with experts and review the details.