Glossary
Bridge Loan
A bridge loan is short-term financing that covers the gap between buying a new home and selling your existing one..
A bridge loan — often called bridge financing — is short-term financing that covers the gap between buying a new home and selling your existing one. When the completion date on the property you are buying arrives before the completion date on the property you are selling, the sale proceeds are not available yet, but the full purchase price is still due on closing day. A bridge loan temporarily advances that shortfall and is repaid once the sale closes.
How a bridge loan works
Bridge loans are typically arranged through the lender funding your new mortgage, or through a lender that already holds a charge on the home you are selling. The lender reviews the equity you expect to receive from the sale and advances a comparable amount. Because it is a short-term advance secured against real property, it is commonly registered as a second mortgage or as a collateral charge.
- Amount: usually capped at your expected net sale proceeds, after existing mortgages, payout penalties and closing costs.
- Term: short — typically weeks to a few months, matched to the gap between the two completion dates.
- Cost: interest plus, in many cases, an administration fee. Bridge loan rates are generally higher than residential mortgage rates, so confirm current pricing and fees in writing.
Why timing creates the gap
Property transactions close on dates fixed in the agreement of purchase and sale. Nothing requires a buyer's purchase and a seller's sale to settle on the same day, so a homeowner who buys before selling — or who simply has mismatched closing dates — can face a period where the funds for the new property are still tied up in the old one. Federal lending rules, including the mortgage stress test and OSFI Guideline B-20 for federally regulated lenders, shape how much a lender will advance overall, so a bridge must fit within the borrower's existing debt service limits rather than sitting outside them.
Risks to understand
A bridge loan is a firm obligation. If the sale of your existing home is delayed or falls through, the bridge still comes due, and the lender may charge interest or demand repayment from other sources. Most lenders require a firm, unconditional sale with a signed agreement before advancing bridge funds. A bridge loan also covers timing, not affordability — it does not replace a down payment or add to how much you can afford. Confirm whether the bridge is registered on title, how it will be discharged, and whether your new mortgage commitment permits the arrangement.
Frequently asked questions
How much does a bridge loan cost in Canada?
Pricing varies by lender and by how long the bridge stays outstanding. Expect interest on the amount advanced, often at a rate higher than a typical residential mortgage, plus a possible administration or setup fee. Some lenders charge a minimum period of interest. Ask for the current rate, the fee, and the discharge cost in writing before you commit.
Can I get a bridge loan if my home hasn't sold yet?
Most lenders will not advance bridge financing without a firm, unconditional sale. They typically want a signed agreement of purchase and sale on the property you are selling, with a completion date close to the purchase date, so they can see the proceeds that will repay the bridge. Conditional or slow-moving listings are usually not enough on their own.
What happens if my sale closes late?
The bridge loan still comes due, and interest continues to accrue at the bridge rate. Some lenders extend the term for a further fee; others may demand repayment from other funds or treat the delay as a default under the loan. Keeping your lender informed early, and building a buffer into the closing schedule, reduces the risk.
Sources
Related terms
- 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.
- 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.
- Agreement of Purchase and Sale — The written contract between buyer and seller that sets the price, deposit, closing dates, and conditions of a real estate transaction.
- 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.