If you’re considering buying a new home before selling your current one, you’ve likely encountered the challenge of financing the purchase temporarily.

Bridge loans emerge as a practical solution in this scenario, enabling buyers to transition between two properties without missing purchase opportunities.

This type of financing has specific features that differentiate it from traditional loans, such as shorter terms and particular conditions for approval.

Understanding how they work is essential to avoid unpleasant surprises and ensure a smoother, more secure transaction.

What are bridge loans and what are they for?

a couple getting a Bridge loans.

Bridge loans are a type of temporary financing that allow homeowners to acquire a new residence while waiting for their current property to sell.

As the name suggests, they act as a “bridge” between two real estate transactions: purchasing a new property and selling another.

These loans are particularly useful when someone finds a new house they want to buy immediately but hasn’t yet sold their current property.

With bridge loans, the buyer can make a down payment on the new property without waiting for the proceeds from the previous sale. Once the old property is sold, the proceeds are used to repay the loan.

In addition to providing quick access to capital, bridge loans prevent buyers from needing to rush their property sale, giving them more freedom to negotiate better conditions.

In many cases, this type of financing is crucial for ensuring a competitive offer on a new property is accepted.

When can I apply for these loans?

Bridge loans are used when changing residences, especially when the timing between selling the current property and buying the new one doesn’t align. They’re mainly recommended for people who:

  • Have found their dream home and don’t want to risk losing it while waiting to sell their current property.
  • Need time flexibility to sell the property calmly and secure a better offer.
  • Are buying in competitive real estate markets where sellers prefer buyers with immediate financing available.

However, buyers must ensure their current property will sell within a reasonable time, as bridge loans are short-term and need to be repaid quickly.

How much can I borrow with bridge loans?

The amount you can obtain through bridge loans depends on several factors, such as the market value of your current property, the outstanding mortgage balance, and your credit evaluation.

In general, the amount granted is based on the equity the homeowner has in the property being sold.

Many banks and financial institutions allow bridge loans to cover up to 80% of the value of the property to be sold, minus the remaining mortgage balance.

For example, if your home is worth CAD 500,000 and you still owe CAD 200,000 on the mortgage, the potential loan amount would be around CAD 200,000 (80% of 500,000 minus 200,000).

However, each institution may set specific limits, and some banks offer different conditions depending on the risk involved and the property locations.

What is the repayment term?

The repayment term for bridge loans ranges between 6 and 12 months. This period is designed to cover the time needed to complete the sale of the old property.

If the property isn’t sold within this timeframe, the homeowner will need to renegotiate the loan or explore other financing options, which may involve penalties or additional fees.

Since these loans are transitional, the interest rates are generally higher than those for a traditional mortgage, compensating for the risk involved and the short contract duration.

Learn about interest rates

Interest rates for bridge loans can be higher than those for other types of financing, such as traditional mortgages.

This is because bridge loans involve greater risk for lenders, as they depend on the sale of a property within a short period.

On average, rates range between 5% and 12% annually, depending on the applicant’s credit profile and market conditions.

It’s essential for buyers to run simulations and negotiate with different institutions to find the best interest conditions and avoid excessive costs.

What is the difference between bridge loans and traditional loans?

The primary difference between bridge loans and traditional loans is the loan term.

While mortgages and other loans have long terms, which can extend to 25 or 30 years, bridge loans are short-term and focused on a specific, temporary need.

Another distinction is that traditional loans require more extensive financial analysis and involve fixed monthly payments over many years.

In contrast, bridge loans offer a quick and flexible solution, but with the expectation of being repaid promptly after the sale of the previous property.

For this reason, they are ideal only for those with an ongoing sales plan who need temporary access to funds.

How to qualify for bridge loans

To obtain bridge loans, you must meet specific criteria. Financial institutions carefully assess the applicant’s financial situation and repayment capacity. Key factors evaluated include:

Sufficient equity

Banks require the homeowner to have significant equity in their current property. This equity is essential to secure the loan, as it serves as collateral for future repayment and protects the lender from financial losses due to non-payment.

A buyer for your home

It’s common for lenders to require that the applicant already has an interested buyer or a firm purchase offer underway for the current property.

This minimizes the risk of the loan extending beyond the expected term and provides more security for the bank.

Good credit score

As with other types of loans, the applicant’s credit score is a crucial factor. A high credit score makes approval easier and can help secure better interest rates. Lenders look for a solid financial history to minimize financial risks and avoid losses.


Bridge loans are an effective solution for those who need to move to a new residence without waiting for the sale of their old property.

Understanding all the details of these loans before applying, especially regarding short terms and higher interest rates, is essential.

Carefully assessing your financial situation and preparing for the property sale process are crucial steps to ensuring a smooth transaction.

To continue learning about financing and other credit options available in Canada, visit our website and stay updated with the latest news.

We regularly update our content to help you make the best financial decisions! Also, read our post explaining how easy it is to transfer your credit card balance.