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(1.) A short-term loan, usually from a bank, which is expected to be paid back relatively quickly, such as by a subsequent longer-term loan. These loans "bridge" the period between the closing date of a home purchase and the closing date of a home sale.
(2.) Bridge loans are typically more expensive than conventional financing because of a higher interest rate, points and other costs that are amortized over a shorter period.
(3.) Interest rates are usually 12-15%, with typical terms of up to 3 years. 2-4 points may be charged. Loan-to-value ratios generally do not exceed 65% for commercial properties, or 80% for residential properties, based on appraised value.
Bankapedia's Take:A typical mortgage will require you to have sold your current house prior to buying a new one, or at the very least have your old house in escrow. Standard primary home financing dictates that the home being purchased will be your primary residence so if you have another home unsold, the bank is going to assume the worst. A bridge loan allows you to purchase a new home without having sold your other house. It is not meant to be a long term loan and will usually have a balloon payment within a yr or so of being taken out. Additionally since the bank is going to need to make its money up front, expect the loan to have several points attached to it. If you have any questions on Bridge Loans or anything else please connect with one of our Live Loan Professionals
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