A bridge loan is a short-term loan used until a person or company secures permanent financing or removes an existing obligation. It allows the user to meet current obligations by providing immediate cash flow. Bridge loans are short-term, up to one year, have relatively high interest rates, and are usually backed by some form of collateral, such as real estate or inventory. 

 

HOW DOES A BRIDGE LOAN WORK?

There is a big chance that you will buy an investment property or move your current home at least once in your life. You may need access to funds you don’t currently have sitting in your bank account for a downpayment or to place an offer. This is where a bridge loan can really help by using the equity in your current property or home as collateral for a loan to purchase your new property or new home. Bridge loans can help homeowners purchase a new home while they wait for their current home to sell.

These loans normally come at a higher interest rate than other credit facilities such as a home equity line of credit (HELOC). And people who still haven't paid off their mortgage end up having to make two payments—one for the bridge loan and the mortgage until the old home is sold. 

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