📘 What is a Bridge Loan?

A bridge loan is a short-term loan that helps real estate investors or homebuyers “bridge” the gap between selling one property and purchasing another. These loans typically have higher interest rates and are meant to be paid off quickly, often within 6 to 12 months.

Bridge loans are secured by the borrower’s current property and are repaid once that property is sold or permanent financing is secured.

📌 When and Why It’s Used

Bridge loans are commonly used when a buyer needs to act quickly on a new investment property but hasn’t yet sold an existing one. This allows the investor to avoid missing out on an opportunity due to timing issues.

They’re also useful in competitive markets, allowing buyers to make cash-like offers without a sale contingency, which strengthens their position.

🧮 How It’s Calculated or Applied

Bridge loans are usually based on a percentage of the equity in the current property. Lenders will often lend up to 70–80% of the home's value, minus any outstanding mortgage balance. Interest rates are higher than conventional loans and are often interest-only during the loan term.

Here's a simplified formula to estimate the loan amount:

Repayment typically happens once the old property sells or through a refinance into a traditional mortgage.

✅ Pros

• Enables quick purchases without waiting for a property to sell
• Can prevent missed investment opportunities
• Offers flexible, short-term funding

⚠️ Cons

• Higher interest rates and fees than conventional loans
• Risk if the current property doesn’t sell as planned
• Requires significant equity in an existing property