Financing Solutions - Bridge Loan
Michael Hallett • November 28, 2016
The fast pace of buying and selling real estate is daunting. Throw in trying to manage closing dates, possession dates and access to the proceeds for the purchase and you have a recipe for disaster.
I recently received an email from a potential client asking these very questions:
"I was wondering how the process usually goes, for looking at a new place. We had planned to use our equity in this home as the down payment for a new place. But if we can’t unlock that equity until the closing date, what usually happens in the interim? Do we have to find a place to rent?...a month or longer? When we bought this place, it was our first home purchase, so moving to a new one is new to us. I don’t understand how we are supposed to start looking for a place after subject removal (which is 30 days after tomorrow), when we can’t access the equity to make a down payment."
This scenario happens much more often than one thinks. In order for sellers to access their equity to become buyers they are required to utilize a bridge loan to transition into their “next” home. The bridge loan allows you to purchase a new property before the sale completes on the existing or current residence.
Most lenders have a 45 – 60-day window to exercise this option, with a range of daily rates and admin fees. The four vital components to a mortgage application are income, credit worthiness, the subject property and down payment.
The first three have been approved; now how does one unlock the down payment? Easy. The borrower is required to supply the fully executed purchase and sale contract, subject removal addendum and the current mortgage statement for the existing property. This provides confirmation that you have sold the property on X date as well it confirming the sale price less the possible real estate commission fees and closing costs. Once the current mortgage amount is subtracted the net proceeds are yielded, leaving you your down payment amount.
As mentioned above, there are fees to access bridge financing, as well as a daily interest rate. If the purchase of the next property completes the same day as the sale, then it is handled at the lawyer’s office internally and the funds are transferred accordingly.
The equity is yours to access right now. The lenders verify your equity with the conditions provided.
Here is an example of the timeline and fees of how the bridge loan scenario can be utilized:
Existing home sold, completing December 14, 2016 $600,000
Current outstanding balance $400,000
Equity remaining $200,000
New home purchase, completing November 30, 2016
The lender has approved the down-payment amount. Because the proceeds are still secured against the existing home we had to provide confirmation that the funds were available. We determined there was $200,000 by way of sales contract, subject removal addendum and the current mortgage statement.
The second layer to the bridge loan is the cost of borrowing the $200,000. Bear in mind the funds are still tied up in the existing property. The cost to borrow the $200,000 temporarily is Prime + 2% (daily rate) plus an administration fee of $250.
$200,000 x 4.70% / 365 (days) = $25.76 per day to borrow $200,000
There is a 14-day completion difference. The total cost to utilize a bridge loan is $360.64 (in interest) + $250 (admin fee) = $610.64.
All-in-all this is a very inexpensive and easy way to access the equity you have built up in your current home. Remember, lenders are in business of making money...this is simply a cost of doing business.
Be sure to surround yourself with industry professionals to make sure nothing is overlooked or miscalculated.
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One of the most common questions, “how long does it take to get pre-qualified?” My response, “how fast can you provide the information I need.”
Playing in the forest today. Always fun exploring. #mountainbikingmortgagebroker
Mortgage Brokering meets mountain biking and craft beer. A couple months ago I set for a bike ride with the intention of answering few mortgage related questions, mission accomplished. Any good bike ride pairs nicely with a tasty beer which we enjoyed @parksidebrewery. Hope you see the passion I have for brokering, biking and beer. @torcabikes #mountainbikingmortgagebroker
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Spotted a ski-bunny today @kirstinjhallett so I trapped ‘er. 📸 credit @troy.hartley
Aidan leading the pack up the Lemming Line in seek of fine fresh powder.
Beautiful British Columbia! A cold winter day at its finest.
Aidan and I braved the -19C temperature and windy conditions for the boot to knee deep turns...it was a no-brainer.
Happy Holidays. Seasons Greetings. Merry Christmas. All the best from Kirstin, Aidan and Michael. Enjoy your family time.
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Extreme tubing, watch until the end. Aidan manages to hold on.
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He was OK, thumbs up. The roll cage and 5-point seat belt did its job.
My sons intro to operating a side-by-side on his own. Watch to the end.
The Lookout over looking Tulameen BC. Took some 4x4ing to get there, but we did it.
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This would have been a fun stunt once upon a time!
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I saw this hat on Instagram, that very moment I knew I needed it. As a BC boy born and bred The Outdoorsman hat needed to be added to my collection. As someone who loves BC and most things outdoor, I’m now glad I have a cool hat to wear and fly the flag of BEAUTIFUL BRITISH COLUMBIA. It will be in my bag for all post-exploration celebratory cold pints. If you want to check them out or add one to your collection go to @nineoclockgun ...and yes my facial hair matches the hat as well.
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My ski buddy getting untracked turns. It was knee to thigh deep all day for him, only shin to knee for me.
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This is a great start to the day!
No better way to share the great outdoors than with friends. @troy.hartley @mike_ilic711 @j_penner70
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The crew shredding some turns , it was a 23,000 vertical foot kind of day.
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Capitalizing on a break in the wet coast rain storms.
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A tasty beverage while on the water yesterday from @backcountrybrewr and @backcountrybrewing
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Wood to wood gap in Whistler.
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Aidan is captaining the watercraft, mom in just the passenger. Kalamaka Lake.
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Saratoga Beach fire.
Canadian tuxedo.
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Zoa Peak, Coquihalla summit 1,500 vertical metres of skiing.
Distancing myself from the real world!
The dry land version of the @andrei_svechnikov37 lacrosse-style goal executed Aidan.
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Does anybody need or want any firewood? It’s free...you come pick it up.
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When you apply for a mortgage, your employment history and status carry a lot of weight. Even if you feel secure in your job, lenders need proof that your income is reliable and will continue. To them, your employment status is one of the strongest indicators of whether you can make your mortgage payments long term. Here’s how lenders typically view different employment situations: Permanent Employment This is the gold standard. Once you’ve passed any probationary period and hold permanent status, lenders see you as a lower risk. It shows that your employer is committed to you, and your income is steady. Probationary Periods If you’re still on probation—usually 3 to 6 months, though sometimes longer—lenders may hesitate. That’s because your employer can end your contract without cause during this period. Once probation is over, you’re considered more secure. That said, context matters. If you’ve worked with the same company for years as a contractor and just transitioned into full-time employment, lenders may accept a letter from your employer confirming that probation is waived. Documentation is key here. Parental Leave Being on or about to take parental leave doesn’t mean you can’t qualify for a mortgage. As long as you have a letter from your employer guaranteeing your position and return-to-work date, lenders can use your regular salary—not your leave income—when assessing your application. Term Contracts This is one of the trickiest categories. Even highly skilled professionals with strong incomes can face challenges here. A term contract has a start and end date, which makes lenders question the stability of your future income. To use term-contract income, lenders generally want to see at least two years of history, or proof that your contract has already been renewed. The more evidence you can show of consistent employment, the stronger your case will be. The Bottom Line If you’re planning to apply for a mortgage, it’s important to understand how your employment status could affect your approval. Whether you’re starting a new job, coming back from leave, or working under contract, lenders want documentation that proves your income is reliable. 📞 If you’ve recently changed jobs or are planning a career shift, let’s connect. I can help you prepare your file so you qualify with confidence and avoid surprises in the approval process.
When you’re buying a home, two terms often cause confusion: deposit and down payment . While they’re related, they serve very different purposes in the homebuying process. Here’s what you need to know. What Is a Deposit? A deposit is the money you provide when you make an offer on a property. Think of it as a show of good faith that proves you’re serious about purchasing. How it works : Typically, you provide a certified cheque or bank draft that your real estate brokerage holds in trust. If your offer is accepted, the deposit remains in trust until the deal moves forward. If negotiations fall through, the deposit is refunded. Connection to your down payment : Once the sale is finalized, your deposit becomes part of your total down payment. Why it matters : The amount is negotiable, but a larger deposit can make your offer more attractive in a competitive market. Keep in mind, however, that if you back out after conditions are removed, you risk losing your deposit. What Is a Down Payment? Your down payment is the amount you contribute toward the purchase price of your home when securing a mortgage. Minimum requirement : In Canada, the minimum down payment is 5% of the home’s purchase price. Anything less than 20% requires mortgage default insurance. Sources : Down payments can come from your savings, the sale of another property, RRSP withdrawals (through the Home Buyers’ Plan), a gift from family, or even borrowed funds. Example: How They Work Together Imagine you’re buying a $400,000 home with a 10% down payment ($40,000). When you make your offer, you provide a $10,000 deposit . Once conditions are met, that deposit is transferred to your lawyer’s trust account. At closing, you add the remaining $30,000 to complete your full down payment. The lender provides the rest—$360,000—through your mortgage. The Bottom Line Your deposit shows commitment and secures your offer, while your down payment is what makes the mortgage possible. Together, they work hand in hand to get you into your new home. 📞 If you’d like clarity on deposits, down payments, or any other part of the mortgage process, let’s connect. I’d be happy to walk you through it step by step.
