Who this is for: Homeowners who must close on a new property before selling their current one and need short-term funds secured against the home they are leaving.
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Moving is a timing puzzle. The home you want closes in March. The buyer of your home wants to close in May. The gap is two months, and your deposit and closing money are locked in the house you have not sold. A bridge loan is the tool built for exactly that.
What a bridge loan is
A bridge loan is a short-term loan secured against the home you are selling, used to cover the cost of the new one until the old one sells. You borrow for a few weeks or months, the sale proceeds repay it, and the lender’s claim is removed from the title.
It is secured the same way as other equity borrowing. The Financial Consumer Agency of Canada notes that your home acts as security for the equity you borrow, and that borrowing carries fees such as appraisal, title search, title insurance and legal fees. A bridge loan has those too, on a short timeline.
When it can make sense
It can make sense when the gap is short, firm and well documented. A signed sale with a closing date a few weeks after your purchase date is a bridge a lender can picture. The sale proceeds are the exit, and the home is worth much more than the loan, so the risk is limited.
It also makes sense when the alternative is worse. Losing a purchase over a deposit, or selling the old home in a hurry at a discount, can cost more than a month or two of bridge interest. Putting numbers on the alternative is part of the decision.
When it makes things worse
It makes things worse when the sale is not firm. If the old home is not yet listed, or the buyer has conditions still open, the bridge is repaid from money that may not arrive. A sale that slips raises the bill, as the second worked example shows: three extra months raised a $6,000 bridge to $11,500.
It also makes things worse when the new home stretches your budget. A bridge hides the carrying cost of two homes for a few weeks. If you cannot afford the new payment once the old home is gone, the bridge only delays the discovery.
What it really costs
Interest for the months of the loan, a lender fee, and legal and other costs. The first worked example uses assumed figures to show a $6,000 total for two months. Fees do not shrink for a shorter loan, so the cost per month is higher on a short gap than on a long one.
Add the costs around the move: any prepayment penalty on a mortgage you break, and the discharge of the old charge. The agency says a penalty on a closed mortgage can cost thousands of dollars and that a discharge fee, where not capped, typically runs from no charge up to $400. A mortgage you port avoids a penalty, which the agency lists as a way to keep your rate and terms when you move.
Think about the order of events, too. The money from the bridge arrives before the old sale closes, and the repayment comes out of that sale, after the lawyer pays your mortgage and the costs of selling. What reaches the bridge lender is the net figure, not the sale price. If you have not subtracted your commission, legal fees and mortgage payout from the price, you do not yet know whether the bridge can be repaid in full.
The risk to your home
The risk is a deadline you do not control. If the sale fails or is late, the bridge lender still wants repayment on the due date, and two homes carry costs at the same time. In a weaker market the price you accept to sell quickly can be less than you planned, which cuts into the money you need to repay the loan and close.
The agency warns that you may face serious consequences, including foreclosure, if you cannot repay money borrowed against your home. With a bridge, that means asking your lender about its timelines and extension rules before you sign, not after.
What to try before a bridge
Look for ways to move the dates. Ask whether the closings can be lined up, whether the buyer of your home would accept an earlier date, or whether you can rent back or extend possession. A longer closing on your purchase may cost nothing and remove the need for a loan.
Ask your bank about a line of credit before you list, if your credit and income allow it, since a line opened ahead of time can serve as a bridge at a lower cost. Ask about porting your mortgage, which keeps your rate and terms on the new home. A comparison of a HELOC and a second mortgage shows the cost difference between a line and a lump sum.
If the new purchase depends on a sale you cannot count on, a safer path is often to sell first and rent for a short time. It is less convenient and often cheaper.
How the exit works
The exit is the sale of the old home. Write down the expected closing date, the net proceeds after costs, the mortgage payout and the bridge payout. Then run the same table at a sale price that is $50,000 lower and a closing that is a month later. If the bridge can still be repaid and the new home can still be closed, the plan has margin.
Ask your lawyer to handle the payout at closing so the bridge is repaid from the sale funds and discharged. Ask what happens if the sale falls through, in writing.
What to ask before you sign
- The total cost of the bridge in dollars, including fees, for the expected term.
- The cost of extending for one month and for three months.
- What the lender needs to see to advance the loan, for example a firm sale.
- Whether the loan is repaid directly from your lawyer’s trust account at closing.
- The licence details of the person arranging the loan, and how to check them with your provincial regulator.
If you want to talk through a closing gap with a licensed mortgage professional in your province, you can check your options. You can say no at any point, and the calculator can price a short loan first.
A two-month gap: $200,000 bridge between two closings
Made-up figures, not typical or current rates. The loan is $200,000 for two months at an assumed 9% a year, interest only, with an assumed 1% lender fee and an assumed $1,000 for legal and other costs. Interest is simple, charged for two months.
- Interest for two months
- $3,000
- Lender fee, assumed 1%
- $2,000
- Legal and other costs
- $1,000
- Cost of the bridge
- $6,000
$200,000 x 9% x 2/12
The same bridge when the sale slips three months
Made-up figures, continuing the example above. The buyer of the old home fails to close and the sale takes three months longer. The rate stays at the assumed 9%, and the lender charges an assumed $1,000 to extend.
- Interest per extra month
- $1,500
- Interest for three extra months
- $4,500
- Extension fee, assumed
- $1,000
- Original bridge cost
- $6,000
- Total cost of the delayed bridge
- $11,500
$200,000 x 9% / 12
$1,500 x 3
Questions people ask
What does a bridge loan actually pay for?
Most often the deposit or the full closing amount on a new home while the old home is still unsold or has a later closing date. The loan is secured on the home you are leaving, and it is repaid from that sale, so the lender will want to see how the sale is expected to happen.
What if my old home does not sell in time?
The loan still comes due. Your lender may extend it for a fee or a higher rate, or may not. Ask at the start what an extension costs and who decides. A sale that slips by weeks costs interest, and a sale that slips by months can force a price cut.
Can I avoid a bridge loan by porting my mortgage?
Porting moves your current rate and terms to a new home, which the agency lists as a way to avoid a prepayment penalty. It does not provide a down payment on its own. It can reduce the cost of moving, and your lender decides whether the new property qualifies.
Is a bridge loan the same as a HELOC?
No. A HELOC is a revolving line you open ahead of time, with a cap of 65% of value, and a bridge loan is a lump sum set up for one closing. If you can arrange a HELOC before you list the home, it may cost less, but timing matters.
Do I pay anything to remove the old mortgage when I sell?
Yes. The sale proceeds pay off your mortgage and the bridge loan, and each lender's charge is discharged from the title. The agency says a discharge fee may apply, typically up to $400 where it is not capped, and a closing lawyer's fees usually apply as well.