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Commonly Asked Questions about Bridge Loans in Ottawa

28 July 2012

In their most simplest form, a bridge mortgage loan is funding that can be borrowed to cover a homeowner’s cost when they are selling one home and buying another. When this happens, often the closing date of the home that’s being sold is after the closing date of the home that’s being purchased. Relying on the proceeds of the sale from the first home, homeowners are then left with little to nothing for the down payment on their new home. And so, they might apply for bridge financing to help cover the costs. But how do these specific mortgages in Ottawa work? Within that one question there are many; and the answers below might prove helpful in answering them for you.

Why would I need a bridge loan?
Maybe it’s more than just a matter of the new home closing after the old home. Maybe you want to make renovations on the old home for the new purchasers; or maybe you want to get the new home “just right” before you move in. Whatever the reason you’re not relocating right away, if the new home closes first, you’ll probably need a bridge loan.

How much can I borrow with a bridge loan?
A bridge loan is usually used to cover the down payment on the new home you are purchasing. Because of this, a bridge loan is almost never for more than the amount needed for that down payment. Even in cases when a lender will allow you to borrow more than the down payment, you will never receive more than 80 per cent of a home’s property value with a bridge loan. And usually, not nearly even that much.

What’s the interest rate on a bridge loan?
Like all mortgages and second mortgages, the interest rate on your bridge loan will vary from lender. It is wise though to go into these loans knowing that they have higher interest rates than first mortgages; and you can usually expect to pay more.

Are there additional fees attached to bridge financing loans?
It used to be that lenders charged a fee to set up a bridge loan; and this was based largely on the fact that lenders don’t make a lot of money on these types of loans. Today though, banks are so competitive with each other that many lenders will waive this fee.

What are the requirements for getting a bridge loan?
Applying for a bridge loan can be easier or harder than getting a conventional mortgage, depending on how you look at it. With a bridge loan you don’t usually need a credit check or need to verify your employment. However, with a bridge loan you will need to prove that both transactions on the homes are nearly final. This means that you’ll need to have both the purchase and the sales contracts.

What are the amortization lengths on bridge loans?
Bridge loans are simply meant to bridge a gap between one real estate transaction and another. Because of this, the amortization periods are not usually very long. Most lenders like to lend bridge loans for around 90 days. The longest bridge loan option is typically no longer than six months.

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