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Bridge financing is short-term, interest-only borrowing that covers the gap between the closing date of a homebuyer's new purchase and the closing date of the sale of their current home, secured against the expected proceeds of that pending sale.
Bridge financing solves a timing problem: a buyer's new home closes before the sale of their current home does, but part of the funds needed to close — often the down payment or closing costs — are tied up in the equity of the home being sold. The lender advances that gap amount for a short period, secured by the firm sale agreement on the current property.
Bridge financing is distinct from porting, which moves an existing mortgage to a new property. The two are often used together: a borrower ports the old mortgage's rate and term to the new home while bridging the equity gap until the sale proceeds actually arrive.
Requires a firm sale agreement: lenders will bridge against a current home that is firmly (unconditionally) sold, not one that is merely listed on the market.
Interest calculated daily: interest on the bridged amount is typically calculated daily for the exact number of days between the two closings, plus a lender administration fee.
Offered as a short add-on facility: many A lenders and credit unions provide bridge financing as a temporary add-on alongside the new mortgage rather than as a separate long-term loan.
Limited to expected net equity: the amount available is generally capped at the net proceeds expected from the sale after payout of the existing mortgage and selling costs.
A homeowner's new home closes 12 days before the sale of their current home. They need $340,000 to close the purchase and have $40,000 in cash on hand:
$650,000 − $300,000 − $32,500 = $317,500 expected net proceeds. The buyer needs $340,000 to close and has $40,000 on hand, so the lender bridges the $300,000 gap for 12 days until the sale closes, charging interest daily on the bridged amount.
Definitions reflect Canadian federal and provincial rules as of the “Updated” date above. Not advice for any specific file.
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