Real Estate Bridge Loan Mortgage Financing.
Bridge Loans.
Institutional & Private Mortgage Bridge Loans.
Residential & Commercial Bridge Financing.
Ontario, British Columbia & Nova Scotia.
What is a bridge loan?
Need a Bridge Loan?
A bridge loan is a short-term financing facility; most commonly, in the context of real estate, a bridge loan is used to help finance the purchase of real estate before the sale of an existing property that is not yet listed for sale or sold. The property not yet listed for sale or sold contains the buyer’s down payment, whereas if this property is to sell before or on the closing date of the new purchase, the buyer would have access to this equity. In other words, a bridge loan can help someone purchase a property before the sale of their current property closes. DV Capital provides homeowners and real estate investors bridge loans across Ontario, British Columbia & Nova Scotia.
Types of Bridge Loan Mortgages.
Private Mortgage Bridge Loans.
There are three typical situations when bridge loan mortgage financing may be helpful:
- The existing property is listed for sale and sold firm to a buyer without conditions; bridge loan lenders have the highest degree of confidence that they’ll receive their money back as there is a firm sale with a tangible closing date. There is always a risk that the purchaser defaults on closing, but there is a lesser degree of calculated risk compared to the other following situations. For this reason, subject to underwriting requirements, traditional lenders provide the lowest available bridge loan rates.
- The existing property is listed for sale without a firm sale. Unlike the previous example where the property has sold firm, even if the propety is sold firm with conditions, in this situation, the property is only listed for sale. The reality is that a property can be listed for sale with a reasonable or unreasonable asking price. This situation provides less confidence to bridge loan lenders than in the previous situation, as there is no telling if and when the property will be sold with less assurance if and when the lender will receive their money back.
- The existing property is not listed for sale. In comparison to the previous two bridge loan examples, in this situation, a bridge loan lender has zero evidence that the property will sell, for what amount, but if the real estate owner will even list the property for sale. For this reason, this example provides bridge loan lenders with the least amount of confidence. This example is arguably more of a ‘blanket mortgage‘ or an ‘inter-alia mortgage’ whereby the mortgage lender will finance the purchase of another property and register their mortgage on the purchase property, and the property not listed for sale, in theory, it’s the same registration set-up as a bridge loan in the previous two examples, however, in this situation, the lender has no assurance that the property will even be listed for sale. If the property owner does not list their property for sale, the lender will ultimately have security over both properties.
How does a bridge loan work?
Bridge Loan Financing in Canada.
Let’s use the example that our clients wish to sell their Toronto home and downsize to a home in Muskoka. Our clients entered into a contract to purchase the Muskoka home with a closing date of 120 days. Our clients intended to complete renovations to their Toronto home to achieve a maximum list & sale price. However, there have been unforeseen delays with the home renovations, resulting in a significant delay in the listing process. Weeks away from the Muskoka property closing date, it becomes unfortunately clear that the Toronto property will not sell before the Muskoka home purchase closing date. The issue is that the clients can’t access their home equity, as it’s tied up in the Toronto home, to purchase their new home in Muskoka. Our clients can come up with a modest amount of money from their savings but nowhere near the amount required to complete the Muskoka home purchase. We assessed the Muskoka home purchase price, the estimated value and the mortgage balance on the Toronto home and determined that we could provide a bridge loan up to 100% of the Muskoka purchase price. A 1st mortgage will be registered on the Muskoka home and cross-collateralized in 2nd position on the Toronto home behind the existing 1st mortgage. A bridge loan is technically a ‘blanket mortgage‘ as one mortgage is registered, or blanketed, against multiple properties. This blanket structure provides the mortgage lender with sufficient aggregate home equity and collateral between both properties.
Bridge Loan Example.
How to Apply for a Bridge Loan Mortgage.
Existing Property:
Location: Toronto, Ontario
Anticipated Sale Price: $2,000,000
Existing 1st Mortgage: $500,000
Purchase Property:
Location: Muskoka, Ontario
Purchase Price: $1,500,000
Deposits Paid to Seller: $50,000
Amount Needed to Close: $1,450,000
Bridge Loan Amount: $1,450,000
Bridge Loan Repayment:
Toronto Sale Proceeds: $1,880,000 (Net Fees + HST)
Discharge Bridge Loan: $1,450,000
Net to Client: ~$437,000
In this example, the clients used their savings to help with purchase closing costs such as land transfer tax and legal fees. The bridge loan will be registered as a 1st mortgage on the Muskoka home and cross-collateralized against the Toronto home in 2nd position behind the existing 1st mortgage. Upon the sale of the Toronto home, the bridge loan will be repaid and discharged from the title of both the Toronto and Muskoka homes, and the clients will reside in their Muskoka home mortgage-free.
How is a bridge loan repaid?
Can I Get a bridge loan if my house isn't sold?
In the context of a bridge loan involving real estate, whereby the bridge loan provides a funding facility to help purchase a property before the closing date of the existing property that contains the purchaser’s downpayment they can’t access, hence the need for a bridge loan, the bridge loan is typically repaid from the sale proceeds of the existing property once sold, as illustrated above. Usually, the entire net sale proceeds, less encumbrances and real estate commission + tax, are directed to pay off the bridge loan. If the net advance is insufficient, the lender usually executes a partial discharge, releases their mortgage charge from the sold property and leaves it registered against the purchase property until the remaining balance gets repaid. It is important to note that in most cases, the interest rate with a bridge loan is higher than a typical mortgage interest rate, hence the short-term nature of bridge loan financing. DV Capital provides short-term bridge loan financing to acquire residential, commercial and industrial real estate in Ontario, British Columbia & Nova Scotia.
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