What Is A Bridge Loan?

• November 25th

by UrbanTurf Staff

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Today, UrbanTurf takes a look at bridge loans. 

A bridge loan is a short-term financing tool that helps homeowners “bridge” the gap between buying a new property and selling their current one. Unlike a traditional mortgage, which is designed to be paid off over many years, bridge loans typically last just a few months to a year. They are often used in competitive markets where buyers need to move quickly on a new home before their existing home has sold.

A bridge loan is usually secured by the borrower’s current property and provides access to a portion of its equity upfront. This allows buyers to cover a down payment, closing costs, or even mortgage payments on the new home while they wait for their sale to finalize. Because the lender is taking on more risk—essentially fronting equity that hasn’t been realized yet—interest rates on bridge loans are generally higher than on standard mortgages.

Repayment most often happens when the borrower’s existing home sells. At that point, proceeds from the sale are used to pay off the bridge loan in full. Some products require monthly interest payments during the term, while others allow interest to accrue and be paid at the end, offering more flexibility for borrowers who want to minimize cash outflow during the transition.

Bridge loans can be extremely useful for buyers who need to make a non-contingent offer or simply want to avoid the logistical challenges of timing two transactions perfectly. But they’re not without risks: if the current home takes longer than expected to sell or must be discounted, borrowers may face higher costs or tighter financial pressure.

This article originally published at https://dc.urbanturf.com/articles/blog/what_is_a_bridge_loan/24096.