So, what are home mortgage bridge loans? As the name suggests, it acts as a bridge when you are buying one house while in the process of selling another.
Although there are different types of bridge financing such as for business applications, we'll just stick to two types here dealing with residential properties.
These residential mortgage bridge loans are meant to be a short-term, temporary solution, for someone buying a "must have" property, while they sell their present home, or wait for their presently sold property to close.
In most cases, the lender fronts the necessary funds to purchase the new house while you wait to sell your present property.
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Here are some situations where a residential mortgage bridge loan might be a good idea:
I actually added that last one to make a point. Except for the first 3 reasons above, when you are activating home mortgage bridge loans you are doing exactly that....gambling.
You are gambling that your present house will sell and close before you run into some financial difficulties.
Your lender should also help guide and advise you through this, but it's up to you to make the decision.
Your lender may also say no and not allow the bridge financing.
As in the case of most things on this website, if you are considering a bridge do your homework first, not when you are under a great deal of pressure to act.
Here are some reasons, not to use residential bridge loans:
Money is tight and if you suddenly have to start making 2 mortgage payments, or extra interest on bridge loans, you will start a slippery financial slide backwards.
The real estate market is slow or sluggish and there are lots of houses on the market for sale.
When you think of putting a $1.00 bill into a slot machine, or playing poker online with a credit card, you get physically ill.
Extra Costs of Home Mortgage Bridge Loans
Due to the usual short term and placement of residential bridge loans, the interest rate is usually higher than a regular homeowner's loan. Ask what the rate is first.
There are extra fees associated with bridge loans including possible up-front fees. Check with your lender for disclosure first so there are no surprises.
Be prepared for the worst case scenario. Ask yourself, "What happens if, after 6 months, my house is still not sold?"
Try Other Solutions First
Here are a few things you might consider before doing home mortgage bridge loans.
NOTE: If you are considering bridge financing should you be called on the conditional, set up the terms with your lender before you get the notice.
Ask your lender for all possible solutions such as a straight line of credit, or an equity loan on your present house.
Wait until your house sells first before going out and seeing that home you just have to own! In other words, don't tempt yourself.
This is a very basic page dealing with home mortgage bridge loans. The main points of this whole exercise are:
Side Note: I'm a big fan of mortgage brokers. My wife and I have had great experiences in using them for all our mortgage needs over the years.
May I suggest you talk to a Mortgage Broker, to look at all your options and to secure the best possible interest rate.
A mortgage broker will shop around for you for the best terms and rates. More on another page of this site.
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