What is a bridge loan and when would you need one?
A bridge loan, also sometimes referred to as a mortgage bridge, is a short term loan to cover the gap between the end of an existing mortgage and the beginning of a new mortgage.
A common example for when a bridge loan is used is when someone wants to upgrade to a bigger home and they haven't yet sold the home they currently live in. In this case, a bridge loan basically covers the gap between the time when the old property is sold and when the new property is purchased.
Another common example is when a buyer tries to put a contingency in their offer that their existing house must be sold. If the seller doesn't want to accept this, the buyer may need to acquire a bridge loan to be able to purchase the property by the seller.
That being said, bridge loans often do come with risk to the buyer. Usually a bridge loan is acquired so that the buyer can guarantee they will meet their obligations to the seller. In the above two examples, the buyer is basically guaranteeing the purchase with a bridge loan, but if they cannot sell their property within the defined timelines, then the consequences are theirs and they have to deal with the repercussions. So always be careful when taking on a a bridge loan.