May 27, 2025

Bridge loans: a solution for buying a home before you sell

You’ve made up your mind: you’re selling your home and want to buy another one that better meets your needs . Sometimes, finding your future home sweet home and the steps that follow are a simple process. Other times, it’s more complex: you find a new home, but haven’t sold your old one yet. What should you do?

If you’ve found the perfect home before selling your property, or if you need the money from selling your current home to make a down payment on a new one, a bridge loan might be the solution. To find out if bridge financing applies to you, read our in-depth article on this solution for buying a home before you sell.

What is a bridge loan?

Coordinating selling your old home with buying your new one can be complex and stressful. Don’t let your dream home pass you by! This is when a bridge loan, also known as bridge financing, comes into play: it bridges the gap between sale and purchase.

Amount: between 70% and 80% of your equity in your current home, or up to the value of your home minus the mortgage balance.
Typical loan term: this is a short-term solution of 90 to 120 days, but in some cases, a bridge loan can be up to 12 months or more.
Repayment: when the sale is finalized.

A bridge loan is a temporary financing option that allows homeowners to purchase a new property without selling their current home, or when the closing dates don’t align.

Eligibility criteria for a bridge loan

In most cases, eligibility for a bridge loan is primarily based on the following question: do you have a firm promise to purchase for your home? For most financial institutions, if you meet this condition, you can qualify for this loan.

For the application, it depends on the lender. Usually, only a copy of the sales contract and purchase contract will be requested, along with the value of your home equity. Some lenders may consider your credit score, income and overall financial health. Of course, having a good financial history always helps.

Steps to get a bridge loan

Bridge loans are available at most financial institutions. Here’s how to apply for and use one:

Step 1: Show your lender that you’ve made a commitment to sell your home and purchase your new property by providing a copy of your purchase and sales contracts. Note that some financial institutions require a real estate broker to sell the property and will not provide a bridge loan for private sales without an intermediary.

Step 2: Use your current home equity (bridge loan) to finance the purchase of your new home.

Step 3: When the sale of your home officially closes, repay the bridge loan with the capital.

Pros and cons of a bridge loan

As with all financing options, bridge loans have pros and cons.

When it comes to the pros, bridge financing lets you buy a home without waiting for your old one to sell. This means you have the flexibility and speed to take advantage of real estate opportunities. Bridge loans therefore reduce the stress of selling your property quickly.

However, the cons should not be overlooked. The interest rate is higher than for a standard mortgage, even though it’s for a short period of time. There’s also the very real financial risk of not selling, and the complexity of buying a new home without selling the old one plus the stress it causes.

Bridge loans and other financing options

In addition to bridge loans, there are other financing options available to you, depending on your situation.

Differences between a bridge loan, mortgage transfer, second mortgage and home equity line of credit
	Bridge loan	Mortgage transfer	Second mortgage	Home equity line of credit
Definition	Short-term financing to bridge the gap between buying and selling.	Same mortgage contract transferred to the new property.	Other means of financing when you already have a mortgage.	Line of credit secured by your property’s equity (up to 65%).
Example scenario	Buying a new home before selling yours.	Selling your home and buying a new one at the same time.	Acquiring an income property or a cottage, borrowing for a large purchase.	Financing your renovation projects or an emergency situation.
Things to consider	You can buy a house before selling the old one, but the interest rate is higher.	Transferring is generally not permitted if you have a variable rate mortgage. A fixed rate mortgage may be transferred.	Minimum 20% down payment required. The Home Buyers’ Plan does not allow funds to be withdrawn from an RRSP for a second property.	Only monthly interest payments are required. Higher risk of debt.

There are other options to access your home equity before it’s sold. Ask your financial institution. For example, a home equity loan (CVD), which allows you to access up to 80% of your home’s value.

Bridge loan calculation and simulation

Here’s a simulation to illustrate how a bridge loan works.

You’ve accepted an offer to purchase your home and made an offer to purchase a new property, which has also been accepted. Unfortunately, the closing date for your current home (i.e., when you sign the deed of sale with the notary) is 120 days away, while the closing date for your new property is in 35 days.

That means there’s a difference of 85 days (120 - 35 = 85 days) between the two dates, known as the transition period. This period will be covered by the bridge loan.

Let’s say the price of the new home is $500,000 and the down payment is 5%, or $25,000. You want to invest the equity you’ve built up in your current home, for example $185,000, in your new home. The bridge loan will therefore be $160,000 ($185,000 - $25,000 = $160,000), which is the amount that will have to be repaid when the sale is finalized.

Typically, the amount is 70% to 80% of your current home’s equity. The lender can also use the value of your home and deduct the mortgage balance.

Bridge loan interest rate

The bridge loan interest rate is higher than a standard mortgage rate for the following reasons:

Short-term: as bridge loans are a temporary financing option, lenders assume a greater risk, which increases the rate.
Risk: a bridge loan is based on selling your home. If this takes longer than expected, the risk increases.
No regular payments: you usually repay the bridge loan in one payment when the sale is finalized, which means higher interest.

How does repaying a bridge loan work?

When you apply for a bridge loan, the lender uses your home equity to determine how much it can give you. Once the loan is approved, you typically don’t have to make any payments. In fact, there’s only one payment: when your home is sold.

Yes, you read that right: you don’t have to pay off the loan until your home is sold.

When the sale is finalized with the notary and the money transfers have been made, the proceeds of the sale of your house (the capital) will be used to repay the bridge loan, according to the terms of the contract, of course.

Fees and penalties

When you apply for a bridge loan, the lender may charge you set-up and legal fees of up to $600 to $800.

Some lenders also impose penalties for early repayments, while others allow you to repay the loan at any time. Some financial institutions may also have other fees or penalties. This should be discussed with your mortgage adviser, but don’t hesitate to ask questions BEFORE signing the contract.

If the sale takes longer than expected, the challenge of having two mortgages and a bridge loan repayment should not be underestimated. There are other options if you have trouble repaying the loan, including extending the bridge loan, converting it into a mortgage, refinancing, and (last but not least) negotiating with the lender. Don’t hesitate to ask your mortgage adviser for advice.

Bridge loan: an effective solution that requires careful planning

Simply put, a bridge loan is a very useful financial tool when you want to buy a new property before selling the property you already have. It provides a nice financial boost and ensures you don’t miss out on an opportunity.

Since every situation is different, we encourage you to consult a mortgage expert who can guide you through this process. In the meantime, there’s nothing stopping you from looking at listings in the area of your choice.

Frequently asked questions (FAQ)

1. How long is a bridge loan for?

Bridge loan terms are typically short, but can range from 90 days to 12 months, or even longer in some cases.

2. Can I repay a bridge loan early?

It depends on the agreement with your lender. Usually, you have to repay the bridge loan once the sale of your home closes. Before signing the contract, make sure you have read and understand the terms.

3. Where can I get a bridge loan?

Banks and other financial institutions, credit unions, subprime lenders and private lenders all offer bridge loans.