Encyclopedia
Bridge loan
Short-term financing that covers the gap between two transactions, such as buying a new property before selling the old one.
For example: An owner-user buying a new building before selling their current one asks their lender about bridge financing and its costs. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you are buying a new building before your current one sells. A bridge loan covers the gap for a few months, and you repay it when your old building closes. You budget for its higher rate and fees.
What I’d tell a friend
Bridge loans solve timing gaps, but they cost more. Have a clear plan for how you will repay one.
Why it matters to you
It buys time, but it's usually expensive and short. If the sale or refinance you're counting on is delayed, you can be stuck paying high interest or forced to sell.
How to use it in your deal
Borrowers should have a clear exit: a firm sale, an approved permanent loan or another repayment source. Compare total cost, including fees and interest. Check the term and what happens if the exit is delayed; extensions can be expensive. Sellers can help a buyer by allowing longer completion dates instead.
Lenders look hard at exit plans and often register a mortgage on both properties, so you'll need equity in each. Developers use bridge or interim loans between land purchase and construction financing; there, the risk is that rezoning or permits take longer than the loan. Build in a buffer of several months and know the cost of an extension before you sign.
If the bridge depends on selling an existing property, an unconditional sale is much safer than a listing. Business owners sometimes bridge with a line of credit; that works only if the bank won't call it during the gap. Tenants rarely use bridge loans, but a landlord in a bridge situation may be more motivated to make lease deals quickly.
Mistakes I see
No firm exit. Underestimating fees and interest. Ignoring permit or sale delays. Relying on a conditional sale. Using a callable line of credit as a bridge.
In BC and Vancouver
Lenders set terms; interest rules follow federal law. The Bank of Canada's policy rate affects pricing.
Official sources: Bank of Canada: key interest rates
What it is
A bridge loan is short-term financing used to cover a gap, such as buying before selling or funding a project until permanent financing is ready.
Rates and fees are usually higher than for long-term loans.
Before you borrow
Know your exit, such as a sale or refinance, and what happens if it is delayed.
Compare offers from more than one lender, and read the terms on extensions and penalties.
Questions to ask before you sign
- What's my exit?
- What does it cost?
- What if the exit is delayed?
- Are there alternatives?
Keep reading
Related terms: Completion date, Interest-only loan
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.