Is It Worth Getting a Bridge Loan in Canada?

Written By Alla Levin
September 25, 2021
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Is It Worth Getting a Bridge Loan in Canada?

Bridge financing is often referred to as short-term financing that enables your down payment security on a recent home you have bought. This is done by using your existing home’s equity.

So, if you have been trying to sell the home you are living in, you may be able to get some money from the sale after you purchase the new house. However, this type of financing is used solely when you have the home equity to repay in a small duration. Along with this, securing a new home whenever possible becomes easier. Also, let us take a moment to view Alpine Credits for more relevant information on this.

Bridge loan in Canada: Is It Worth It?

We all know that the high-interest rates are already a tough nut to crack. That is why you must be ready to pay additional fees when in need. At this point, you could use the lender bridge loan fee that may cost you anything between $400 to $500. But this is irrespective of the duration for which the loan is to last.

Lenders charge such a fee because the interest on a short-term bridge loan might not be sufficient to compensate them for the extra work. Legal fees may also be a part of it that ranges from nearly $200 to $300. However, it may vary among different lawyers. So, you must know that this type of loan is entirely secluded. That is why a lawyer must prepare for the necessary forms.

How Long Does This Loan Take?

The approval process for this one typically takes longer. Such institutions are best for funding longer-term loans. Documents, forms, and waiting periods are also present that expand the approval process.

That is why you might need to wait for nearly a month to get your loan from such sources. Usually, when you wish to obtain a loan from a hard money lender, the wait time is mostly shorter than the mortgage. Quick access is one of the best selling points to improve liquidity after a home is bought. Generally, it must take nearly two to three weeks to obtain your loan after being approved for a loan request.

Is The Qualification Process For A Bridge Loan Tough?

The process of difficulty of the bridge loan may rely on the lender type one wishes to opt for. That is why conventional lenders always mitigate the risk. Such a process is also very similar to a mortgage application.

That is why it comes with stable finances, a comprehensive understanding of your payment potential, and a credit score. But hard money lenders care additionally about the equity value of your home. So, the more amount you have for home equity, the more likely you are to get qualified. Such lenders are well-known for being another option for people with unstable credit and immediate financing requirements.

Where To Find A Bridge Loan?Bridge Loan

With an excellent credit score and the ability to repay the bridge loan, you can make the most of conventional lenders and mortgage banks. Of course, such a thing may come with credit unions and banks. But the need for obtaining a loan from such sources is pretty stringent. A copy of the sale agreement for the existing home and the purchase agreement for the new one is also essential. So, make sure you have them handy in need.

Using a hard money lender can be all you need if you look for a more convenient application. This may come with private mortgage lenders. Such unconventional lenders draw more concentration on the equity value of your existing home than the credit score.

That is why they prove to be helpful in case you are looking for immediate financing. However, if you wish for a longer-term bridge loan, a conventional source may be the best pick for you.

Bridge Gap Loan

Bridge mortgages or bridge gap loans are terms used for bridging the gap amidst the selling of an asset type and purchasing it. This is where the borrower wishes to buy a specific asset and obtains a short-term loan to guide their existing liquidity until they can replay it.

This can be done by selling another asset in need. This type of financing is best used in real estate when houses are expensive and illiquid assets. We also know that bridge financing can be pretty expensive, which is why using money to finance a buy temporarily is a better option in this case. But the hefty amount of equity in most homes is usually more significant than personal liquid assets.

Advantages Of Bridge Gap Loan: FlexibilityFlexibility

With a bridge loan, you can easily purchase a new home even if the funds are locked up in your existing home’s equity in need.

High Liquidity

Generally, the application process for this is quicker than other types of loans. This is due to the people’s short-term requirement for liquidity.

Reduce Risk To A Seller

Homebuyers are constantly surrounded by the option to buy a home contingent on the sale of their existing home. But it is associated with both uncertainty risks and the timing of that home. With a bridge loan, closing on a deal with money becomes as easy as it gets.

Bridge Loan in Canada: A Place To Stay

One can easily survive in the current home without worrying about financing a home purchase. However, if you cannot find the home you love, you can choose to stay in the existing home for as long as you wish for it.

Disadvantages Of Bridge Gap Loan: Higher Interest Rates

These types of loans generally have higher interest rates than mortgage rates. This is due to their short-term nature. They may also make several loan payments every month, which may eventually be financially draining for you.

Bridge Loan in Canada: Pressure To Sell

If you fail to sell your home, you will likely be stuck paying for two different mortgages. You may also have to pay a bridge loan simultaneously. So, if you fail to make those payments, your loan will compound. As a result, you have to pay additional fees.

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