Like traditional mortgages, bridge loans are commonplace in real estate transactions. This form of short-term loan can help buyers in a variety of situations, including covering a down payment or using it as a second mortgage.
Here is some important information to know about bridge loans:
What is a bridge loan?
A bridge loan is a type of short-term financing to help cover any gaps in funding. Topically lasting from 6 months to one year, they're common in real estate situations. Bridge loans are also known as bridge financing, interim financing, gap financing or swing loans.
How does a bridge loan work?
Bridge loans are similar to traditional bank loans, except they’re assessed by several factors, such as credit scores and debt-to-income ratios. These loans generally use the borrower's current home as collateral, and vary in terms of interest rates. Some offer monthly payments, whereas others demand upfront or long term lump-sum interest payments.
Pros & cons of bridge loans
There are some major benefits to this form of financing, depending on your situation. One of the greatest advantages of a bridge loan is the flexibility to make an offer on a new home without selling your current home.
However, bridge loans typically have higher interest rates and APR than other forms of financing. Some lenders also require you to take out a new mortgage with them before they'll offer a bridge loan for the interim.
Types of bridge loans
Although bridge loans are not usually classified in specific kinds, they are usually varied based on interest rate, repayment method and repayment terms. Bridge loan interest payments may also be handled in various ways. Some lenders require borrowers to pay monthly, while others prefer a payment for interest that is paid in installments at the end of the loan.
Should you use a bridge loan? Depending on your financial situation, it might be an excellent option for funding your homebuying process. Keep these key factors in mind and consult a lender to find out more information.
About the Author
Marsha Charles
Consistent top listing and selling agent receiving Chairman's Club award for superior sales achievement almost every year while associated with Preferred Properties, Inc. Consistently receive the International Presidents Premier award for sales volume since joining Coldwell Banker Realty and ranked in the top 1% of agents in Connecticut and Westchester County. In 2021 I received the International Society of Excellence award for sales volume in excess of $100,000,000. I have been named a Top Five Sales Agent for customer satisfaction since 2010 (longer than any other agent in Connecticut) and listed in Connecticut Magazine. Named one of the Top Agents in Connecticut by Real Trends since 2018.
I work with sellers and buyers and also have a strong understanding to needs of those who are relocating . Background and experience in advertising, public relations and photography offer creative and innovative marketing plans for sellers.
Realtor designations include: Graduate Real Estate Institute, Certified Residential Specialist, Certified Residential Marketing Specialist, and Pricing Strategy Advisor. Served as President of New Canaan Board of Realtors (two terms), Director (three terms) and currently serve on Professional Standards Committee. Named Realtor of the year by the New Canaan Board of Realtors in 1994and again in 2022.
Married and mother of other of four children who attended and graduated from the New Canaan School System, Member of New Canaan, Darien, Greenwich and Statewide MLS systems. Areas covered include New Canaan, Darien, Greenwich, Rowayton, Norwalk, Wilton and all of lower Fairfield County.
