Sometimes when you buy a home, the closing date for the home you are selling does not match the closing date of the house you are buying. Some of the typical reasons for a difference in closing dates might be: you want to get some renovations completed on the home being purchased before moving into it or perhaps you could not get the seller to give you the closing date that you really wanted. So if the closing date of the home you are buying is before the closing date of the home you have sold, you will need a bridge loan.
Let’s use a real example so you can understand how a bridge loan amount is derived:
Price of the home being purchased: $450,000
Less: Amount being mortgaged: $360,000
Less: Deposit you give to the Realtor: $10,000
Equals: $80,000 Bridge Loan amount
The bridge loan amount is really your total down payment, less your deposit because the lender is advancing the rest of the mortgage money on the closing date for the home you are purchasing.
Here is how the interest cost is calculated, for a sample bridge loan amount:
Client is buying a new house - closing date = April 30, 2011
Current home is not closing until = June 25, 2011
Clients need a Bridge Loan to cover them for 56 days until current house sells.
Bridge Loan amount required is $80,000. Lender’s interest rate = *prime rate (3.00%) plus 4%.
Bridge loan $80,000 X 0.07 (interest) = $5,600
$5,600 divided by 365 days = $15.3424 (per diem cost)
$15.3424 X 56 days = $859.17
For a Bridge Loan advance that is greater than a certain amount, and is greater than 45 days, the lender will sometimes ask that the bridge loan be secured by way of a collateral mortgage on the property being sold. If a collateral mortgage is required, lawyers will often charge extra to do this (estimated at $500 and up). Some lenders will also charge a bridge loan “set-up fee”, and some lenders do not. Remember also that a property sale must be firm before a lender will arrange a bridge loan for the borrower(s). And finally, lenders will not advance more than 90% of the value of the property being sold.
This blog post was written by Elizabeth Blair on May 19, 2011.
Elizabeth Blair is a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.
You can contact Elizabeth directly by phone at (905) 510-5785
by email at eblair@mortgageedge.ca
or you visit her website at: www.missmortgage.ca
Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca
Agent Lic # M08005880
Brokerage Lic # 10680
Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.
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