Glossary
Bridge Financing
Short-term financing that covers the gap when you buy a new home before your current one sells, repaid from the sale proceeds..
Bridge financing is short-term credit that covers the gap when you buy a new home before your current one sells, letting you use the equity trapped in the property you are leaving until that sale completes. Lenders also call it a bridge loan or interim financing.
How bridge financing works
Most Canadian purchases need cash on the completion date: the down payment, closing costs, land transfer tax, and legal fees. If your existing home has not sold yet, that equity is not liquid. A bridge advance supplies the shortfall so both transactions can close on schedule.
- The bridge is normally secured by a charge on the home you are selling, the home you are buying, or both.
- It is repaid from the sale proceeds of your current home on its closing date.
- Lenders generally want a signed, firm offer on the property being sold before releasing funds.
- It is designed to last days or a few months, not years.
Example: your new home closes on the 15th and your existing home closes on the 30th. You need bridge funds for roughly those 15 days, and the lender recovers the advance from the sale proceeds when that second transaction closes.
What it costs
Because it is short-term credit, interest on a bridge loan is typically priced higher than the rate on a regular mortgage, and an administration or setup fee may apply. Interest is usually calculated on the amount advanced for the number of days the bridge stays outstanding, so a shorter gap costs less. Confirm current pricing, fees, and the maximum bridge period with your lender — these vary by institution and by province.
Risks and alternatives
The main risk is timing. If your sale is delayed or falls through, the bridge must still be repaid, which can leave you carrying two properties or arranging a second mortgage under pressure. Some buyers instead make the new purchase conditional on selling their existing home, or negotiate a longer gap so the sale closes first and the cash is available without borrowing.
Federally regulated lenders follow OSFI Guideline B-20 when underwriting residential mortgages, and bridge lending is assessed under each lender's own credit policy. Approval is never guaranteed, and the bridge is not a substitute for a firm sale or for savings.
Frequently asked questions
How much bridge financing can I get?
The amount is usually tied to the equity in the home you are selling and the cash shortfall on the new purchase, after repaying the existing mortgage and covering closing costs. Lenders may also cap the advance by a loan-to-value limit on the property securing the bridge. Ask your lender for the current figures.
Do I need a firm sale to qualify for bridge financing?
In most cases yes. Lenders generally want a signed agreement of purchase and sale on your current home with a scheduled closing date, plus a firm offer on the new home. Some may consider a conditional sale, but on different terms. Confirm your lender's requirement before waiving any conditions.
What happens if my home does not sell before the bridge is due?
The bridge still has to be repaid. Depending on the lender, a short extension may be possible at its discretion, but otherwise you would need another source of funds. Missing the repayment can lead to default on the bridge charge, so review the timing carefully before committing.
Sources
Related terms
- Firm Offer — An offer to buy a home with no conditions attached, which the buyer cannot withdraw once the seller accepts it.
- Completion Date — The date on which a real estate sale legally closes, the mortgage funds are advanced, and ownership of the property transfers to the buyer.
- Closing Costs — Closing costs are the one-time fees, taxes, and charges paid on top of a home's purchase price, separate from the down payment.
- Second Mortgage — A second mortgage is an additional loan registered behind an existing first mortgage, usually at a higher interest rate because it ranks second on title.
- Mortgage Commitment — A mortgage commitment is a lender's formal written offer to advance funds on specified terms once the borrower satisfies the stated conditions.