HomeBlogWhat Is Bridge Financing and How Does It Work?

What Is Bridge Financing and How Does It Work?

What Is Bridge Financing and How Does It Work?

There are many advantages to exploring the option of accessing existing equity in your home for various short-term financial goals. After all, you have worked long and hard to pay your monthly mortgage payments. The goal is to have your principal loan paid in full. 

Along the way, from taking out a primary mortgage to no longer owing any money to your lender, financial priorities may pop up, forcing a homeowner to evaluate financial priorities. It may be time to look at second mortgage options utilizing the equity built up in your property.

During the peak of the pandemic and throughout the first quarter of 2021, property appreciation has been substantial in properties throughout Ontario and, in particular, Toronto and the surrounding GTA. June 2021 housing numbers continue to be impressive. 

According to the Toronto June Housing Report, the average price of a single detached property in the Toronto area has risen to 1.1 million. Houses are selling very quickly. Houses are selling on average after only 13 days on the market. These numbers are very encouraging for existing Toronto homeowners serving as further incentive to look carefully into the various second mortgage options available.

The Option of Bridge Financing for Ontario Homeowners

There are several second mortgage loan options available for those Ontario homeowners who may want to utilize the equity in their home to help achieve short-term financial priorities. Types of second mortgage options can include:

One other appealing second mortgage option open to those who own their own home is a bridge loan.

What exactly is a bridge loan? Simply put, bridge loans represent short-term loans (usually 3 to 12 month terms) in which a homeowner borrows against the existing equity in their home or property. The reason to take out a bridge loan usually stems from the need to access considerable equity to purchase new property. 

Once the new property is secured, then these funds will be paid in full from the sale of the primary home. Bridge financing can also be used to pay off other immediate debts or financial concerns such as home renovation projects however, the primary use is for accessing funds in the short-term to pay for a new property before the sale of the house.

A bridge loan acts as a financing bridge between selling your current property and closing on a new purchase. To fully benefit from bridge financing, there should be sufficient equity in your current home.

Pros and Cons of a Bridge Loan

When considering a bridge loan, it’s wise to weigh the advantages of this short-term financing option. Conversely, it would be a good idea to be clear on some of the downsides as well:


Taking Out a Bridge Loan:

  • Is a fairly quick way to obtain financing, usually with a private lender, it will only take a matter of days (typically 3-5 days). Banks will take longer (up to three weeks often).
  • Will avoid the issue of having to move twice, one before the home sales and then into the next property.
  • Enables a homeowner to access equity quickly without selling their property first.
  • Using existing equity will provide the funds to offer a larger down payment to a seller that is advantageous in a competitive Toronto housing market.
  • Obtaining a bridge loan through a private lender will be achievable even with poor credit if the banks have turned down a homeowner.
  • Private lenders will offer bridge loans to homeowners who may need immediate funds to pay off existing debts.


  • Might have to pay for an appraisal when applying for bridge financing. An appraisal is what a prospective lender will be scrutinizing when determining the terms of bridge financing.
  • Slightly more expensive than a home equity loan, for example.
  • Higher Interest rates associated with bridge loans.
  • Higher fees and transaction costs compared to long-term amortized mortgage loans.

How Do Private Lenders Calculate Bridge Financing?

When approaching a bank, your credit score and income will be the top determinants when approving bridge financing. Typically, a bank will lend up to $200,000 for usually a three-month term.

A private lender can negotiate a bridge loan, even with credit issues, regardless of the intended property purchase.

A homeowner will be able to use these privately negotiated bridge loans for other reasons including paying off immediate debts, paying off arrears if a primary mortgage has fallen into default, and any possible renovations or consolidation of multiple monthly liabilities.

Banks calculate the difference between your deposit and the bridge financing amount you’re requesting. If you seek $170,000 for a new house with a $20,000 deposit, the equation is $170,000 – $20,000 = $150,000. Bridge financing typically offers $150,000 at Prime plus 2 or 3% interest for a three-month term.

The banks will be lending out bridge financing to help homeowners buy a new property. Private lenders will be looking at bridge financing as a way for a homeowner with poor credit or non-traditional income to obtain short-term financing to pay or consolidate other debts using existing equity.

Therefore, a private lender will calculate the Loan-to-Value (LTV) on your home and assess the degree of equity you may have. Private lenders typically require 25% existing equity and loan up to 75% Loan-to-Value (LTV) based on home appraisal. The loan will be short-term, similar to the banks. Typically, bank terms will be for 3 months to a year depending on the needs of the homeowner.

Bridge Loan Fees 

Fees will be higher for both banks and private lenders when it comes to bridging financing. Private lenders often charge 7% to 12% interest on bridge loans and other second mortgage options. Private mortgage financing fees typically range from 3% to 6% of the total loan amount.

Mortgage Broker Store Can Negotiate Different Types of Second Mortgage Loan Options

With access to a broad network of well-established and experienced private lenders across Ontario, the Mortgage Broker Store can connect an interested homeowner to private lenders to discuss various second mortgage loan options, including possible bridge financing.

We will also be able to negotiate private financing directly based on your specific financial objectives. Bridge loans are accessible despite poor credit or unconventional income, assisting in addressing pressing monthly financial obligations. Don’t hesitate to contact us at your convenience to discuss the best options to suit your unique financial circumstances.

About Jonathan Alphonso

Mortgage Agent, Web Developer, and Real Estate Investor. Together with Ronald Alphonso I run MortgageBrokerStore.com. I write about a variety of topics on Canadian mortgages and real estate. Our particular specialty is dealing with Ontario power of sale and foreclosure situations.

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