What is Bridge Financing in Canada? (2024)
verified information
Information verified by Alexandre Desoutter
Our articles are written by experts in their fields (finance, trading, insurance etc.) whose signatures you will see at the beginning and at the end of each article. They are also systematically reviewed and corrected before each publication, and updated regularly.
Discover the methodology
There are always those moments in life when the timing of things just doesn’t line up perfectly. Those moments can be some of the most stressful circumstances we go through, like losing out on purchasing your dream house simply due to the sale of your current home being off-timed. This is where bridge loans come in. This is precisely what they are intended for and can be a saving grace in those moments you fear missing out.
Did you know that two-thirds of Canadians are already homeowners? Making up over half of the population that either has or could benefit from bridge loan financing.
By reading through the guide below, we aim to help get you up to speed on everything you need to know. We cover questions like: ‘how does a bridge loan work?’ to ‘‘how much is bridge financing?” and how to get bridge financing.
What is a bridge loan?
Instead of having the stress of trying to perfectly line up the day you move from your old house into your new one, you have the option for a bridge loan. Simply put, a bridge loan (also known as bridge financing or mortgage bridge financing) is used to ‘bridge’ that awkward time gap when organizing logistics between selling a previous home and getting a mortgage on a new one. .
With no long-term financial impact (typically only 90 days), incredible convenience and no monthly fee, bridge loans have grown in popularity across the country. Having the flexibility to hold two properties at once does come with higher fees and interest but has continued to be wildly enticing for thousands of Canadians, especially when the terms free up cash flow, allowing you to pay the loan back once you sell your house.
Good to know
Mortgage bridge loans are most suitable for current real estate owners who’re selling their property and not for first-time home buyers.
How does bridge financing work?
There are two types of bridge financing in Canada, we break these down below so you can choose the best for you depending on your personal circumstances bank bridge loans and private bridge loans.
| Type | How it works |
|---|---|
| Bank Bridge Loans | This is the most common type of bridge loan and is offered through the bank qualifying your mortgage. Most major banks will offer this only on a short-term basis (generally 30-90 days depending on the bank) as an ‘add-on’ service in conjunction with your mortgage. You will need to have sold your old home and are waiting to gain possession of your new home to qualify. |
| Private Bridge Loans | If you haven’t sold your old home yet, a private bridge loan may be the best option for you as most lenders will use your home equity to qualify you, however, there are usually bridge loan fees against both properties to secure the bridge financing. One of the benefits however is it allows for slightly more time than a bank bridge loan (depending on your specific lender’s terms) and a bit less paperwork involved. |
Let's look at an example of how bridge financing can work:
For example
The Jones family in Ontario has outgrown what they thought was their forever home, so they're upgrading. They are selling it for $450,000, but still owe $300,000.
They want to take the highest offer that they received but the buyer needs a longer closing date. The home they plan to move into needs a short closing date which creates a problem for their downpayment.
By taking advantage of a bridge loan, they may be eligible for up to $150,000 (based on what they owe and are selling for) allowing them more time to match up the dates perfectly.
Bridge loan pros and cons
Bridge financing can be a good solution for homebuyers, but there are some things to consider first. We’ve compiled a list of advantages and disadvantages to better help you decide if a bridge loan is the right financial product for you:
Bridge financing pros:
- Gain flexibility with timing between the sale and purchase of your next property
- Limited or no delays in set up and the funds are received quickly
- Ability to use your home equity in the purchase of your new home
- Room to accept the best offer on your home without rushing, due to marrying up closing dates
- Allows you to make upgrades or renovations to your new home before you move in
- Frees up monthly cash flow as fees and interest are due upon the sale of your previous home
- Doesn’t tie you into long-term debt such as a personal line of credit
Bridge financing cons:
- Often have higher interest rates than a standard mortgage
- Not only are there interest charges, but also admin and legal fees on bridge financing in Canada
- Risk of paying two mortgage payments if the sale of your old house falls through
- Terms, conditions, bridge loan rates and fees can vary extensively depending on the lender requiring due diligence
How do you get a bridge loan?
The type of bridge loan you decide is best for your needs will determine the information you will need to qualify and obtain bridge loan financing.
Bank Bridge Loans:
Many borrowers start with the bank offering them mortgage services, as most banks will not offer this financial product as a ‘stand-alone’ option.
The terms for each bank vary, but they will have detailed resources on their respective websites or when speaking with a financial advisor.
Let’s say you bank with Scotiabank. You may want to review the Scotiabank bridge loan calculator and book an appointment to discuss further if their terms and conditions suit your circumstances. From there, they will require proof of your home’s sale agreement along with the purchase agreement for your new property in order to check your eligibility and for the approval process.
Private Bridge Loans:
If you have not sold your home yet, or are in the process but do not have a firm selling date, you can obtain a private bridge loan through financial institutions outside of Canadian banks. Depending on the lender, they may need to review your credit score or lean more heavily into your current home’s equity and property value.
How much does a bridge loan cost?
The cost for a bridge loan varies depending on which bank or private lender you move forward with. Typically there is a higher interest rate (and admin fees) associated with the level of convenience the bridge loan brings you.
Your financial health and the amount of money you are borrowing may impact the rates you pay. At the time of writing, bridge loans start at a bank's prime rates +2 to 3%. At the time of publication prime rates are at 6.7% in Canada, but rates change quickly so confirm with your bank.
You will also be faced with administration and legal fees such as the cost of appraisals, set-up fees, escrow fees and notary fees. These typically average out to 2.25% of the total borrowed amount.
What are the best bridge financing rates?
The best bridge loan rates are likely to come from your mortgage lender and will be a little more than your mortgage rate.
Currently, the best bridge loan financing rates are a couple of percentage points over the prime rate, which works out to around 8.7%. Rates can move quickly though and have been on the rise in 2022 and early 2023.
Fees will vary depending on the bank or private lender you move forward with, the amount of your loan, your home equity and your financial health.
Banks generally have lower rates than private lenders. If your home is already sold, they can be a good option and ensure that you do not pay more interest than necessary.
Compare mortgage rates now
How long does it take to get a bridge loan?
Bridge loan financing in Canada can be a speedy process, which aids in making sure the timing is seamless in an otherwise hectic property market.
Bridge loans can be approved in as little as 72 hours. In some cases, private lenders even offer 24-hour approval. In some circumstances, it may drag out to 2 weeks depending on the provider.
Good to know
Checking your eligibility and reviewing the resources before you make an offer on your next home allows you to be perfectly prepared for any wait times with banks or lenders.
What lenders offer bridge financing?
With the Canadian housing market being as fast-paced and competitive as it has become, bridge loans increased in popularity. Due to the demand, most, if not all, of the mainstream Canadian banks offer this financial product to their mortgage customers. These include:
- TD
- Scotiabank
- BMO
- RBC
- CIBC
- Many more
For private bridge loans, you can also find many bridge financing companies throughout Canada. They have higher fees but fewer requirements and paperwork required to qualify. Loans Canada and CMI (Canadian Mortgage Investments) are examples.
Can I get a bridge loan without a firm offer?
Many people believe that you aren’t able to get a bridge loan without the sale of your current home. This is only true if you decide to pursue a bridge loan through the bank.
Have you not closed the sale on your house yet, making your equity still tied up? You can still look into a bridge loan through a private lender. If your financial health isn’t great at the moment, bridge loans through private lenders would be an option for you, too - just be aware that the interest rates are generally higher than the banks.
Alternatives to bridge financing?
If by this point, you aren’t sure you will qualify for a bridge loan or that it is the right financial solution for you, there are alternatives available.
The easiest may be to negotiate with the other parties to extend the closing date on your new home.
If that doesn't work another alternative to a bridge loan is a Home Equity Line of Credit (also known by the acronym HELOC). These use your current home as collateral for a sizeable line of credit. One may be able to use this money for a down payment. But be careful, it would have to be in place before you have an agreement to purchase the new home though.
Compare mortgage rates now
