Bridge loans provide short-term, collateral-backed funding to cover timing gaps between transactions (for example, buying a new home before selling the old one or bridging to longer-term corporate financing). They are typically interest-only, quicker to close, and more expensive than permanent loans. Borrowers should compare costs, confirm terms, and have a firm exit plan.

What a bridge loan is

A bridge loan is short-term, interim financing that fills a temporary cash gap until permanent funding arrives. Lenders include banks, credit unions, mortgage brokers and private or specialty lenders. These loans are usually secured by collateral such as real estate, inventory or accounts receivable.

How bridge loans work

Borrowers use bridge loans to cover obligations while they wait for another financing event - for example, the sale of a property, a completed equity raise, or a long-term loan closing. Repayment often comes from the proceeds of that event.

Most bridge loans are interest-only during the term and require a balloon payment when the loan ends. They typically carry higher interest rates and lender fees than permanent financing because of the short term and higher perceived risk.

Common uses

  • Real estate: Buyers who need funds for a down payment before their current home sells commonly use bridge loans.
  • Corporate transactions: Companies may use bridging credit while they prepare for an equity raise, an IPO, or a longer-term loan.
  • Renovation and construction: Developers use interim financing to start projects before permanent construction financing is in place.

Typical terms and costs

Bridge loans are short-term by design. Many have terms of around 6-12 months; some lenders offer longer terms intended for more complex transactions (up to 24-36 months) .

Costs include interest, origination fees, and closing costs. Lenders price these loans based on collateral, borrower credit, and market conditions. Because bridge financing is temporary and tailored, comparison shopping is important.

Advantages

Bridge loans let buyers make competitive offers without sale contingencies. They preserve liquidity and can prevent deals from falling through when timing doesn't align.

Risks and downsides

They are more expensive than standard mortgages or longer-term loans. Borrowers can end up servicing both the old and new mortgage plus the bridge loan if their exit plan (for example, a home sale) is delayed. If the collateral's sale stalls, the borrower may face forced repayment, refinancing at worse terms, or loss of the collateral.

Alternatives and practical advice

Consider alternatives such as a home equity line of credit (HELOC), a secured personal loan, or seller financing. Before taking a bridge loan, confirm the lender's repayment terms, fees, and whether payments are interest-only. Have a clear, realistic exit plan and get written timelines for any dependent transactions.

If you expect to use bridging credit, shop lenders, compare total costs, and consult a mortgage professional or attorney to understand the legal and tax implications.

  1. Confirm common maximum term lengths offered for bridge loans (whether lenders commonly offer up to 24-36 months).

FAQs about Bridge Loans

How long does a bridge loan last?
Bridge loans are short-term by design, commonly around 6-12 months. Some lenders offer longer terms for complex transactions (reported up to 24-36 months) .
What happens if my house doesn’t sell before the bridge loan is due?
If the sale stalls, you may need to refinance the bridge loan into longer-term financing, extend the bridge loan (if the lender allows), or pay it off from other funds. If none of those are possible, you risk default and potential loss of the collateral.
Are bridge loans more expensive than regular mortgages?
Yes. Bridge loans typically carry higher interest rates and fees than conventional mortgages because they are short-term and higher risk for lenders.
Can I make interest-only payments on a bridge loan?
Many bridge loans are structured with interest-only payments and a balloon payment at term end, but terms vary by lender and loan product.
What alternatives should I consider?
Alternatives include a HELOC, a home equity loan, seller financing, or a longer-term loan that closes quickly. Evaluate total cost, speed, and risk when comparing options.

News about Bridge Loans

Netflix leans on $59bn bank loan to fund Warner Bros takeover - Financial Times [Visit Site | Read More]

StreamBank simplifies bridging product range - Mortgage Finance Gazette – [Visit Site | Read More]

Excess Spread — Across the bridge, off-the-run - 9fin [Visit Site | Read More]

Paramount Lines Up as Much as $54 Billion Debt for Warner Bros. - Bloomberg.com [Visit Site | Read More]

StreamBank launches simplified bridging product range - The Intermediary [Visit Site | Read More]

Cerberus makes bridging breakthrough with Dutch buy-to-let RMBS - GlobalCapital [Visit Site | Read More]

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