What is bridge financing when buying and selling a home in Ontario?

Bridge financing is a short-term loan that lets you close on a new home before the sale of your existing home completes. If your purchase closing date is, for example, one week before your sale closes, you need funds to cover the purchase without yet having the proceeds from your sale. A bridge loan provides that gap.

Most institutional lenders offer bridge financing as an add-on to your mortgage, provided both transactions are firm — meaning all conditions have been waived on both the purchase and the sale. Lenders typically require a signed purchase agreement showing your sale is confirmed. The bridge loan is repaid automatically on the day your sale closes.

Bridge loans carry interest for the number of days you hold them, at a rate that is typically somewhat above the lender's prime rate. There may also be a flat administration fee. For a short bridge of a few days or weeks, the cost is usually modest. Problems arise when your sale falls through, leaving you holding two properties and a bridge loan — which is why lenders require firm sale agreements before advancing bridge funds. Your lawyer and mortgage professional should coordinate closing dates to minimize the bridge period.