A bridge loan stands out as one of the smallest, most rapid, and efficient types of homeowner loans available. Unlike more common loans such as primary and secondary mortgages, refinances, home equity loans, and debt consolidation loans that use the property as collateral, bridge loans serve a unique purpose. They are specifically designed to assist homeowners in navigating temporary financial gaps in their mortgage journey. Typically, bridge loans are most applicable in situations where an individual has bought a new home but hasn’t yet sold their current one.

For those who have secured their ideal new home and have an accepted offer but are facing delays due to the slow sale of their existing property, a bridge loan can offer a timely solution. As the name implies, it bridges the financial gap between the purchase of a new home and the sale of the old one.

While a bridge loan can be a vital lifeline in securing your dream home, it is usually a more expensive loan option and should be considered a last resort. However, in the short term, it can be an effective solution to a pressing problem.

There are two main types of bridge loans in real estate: open bridge and closed bridge loans. Closed bridge loans are available to those who have already exchanged contracts on their current property, as the likelihood of a deal falling through after this point is minimal.

On the other hand, open bridge loans cater to individuals who have found their desired new home but have not yet listed their current property for sale. This type of loan typically requires substantial equity in your current home and a clear plan for sale.

Bridge loans usually offer a grace period of around six months without payments. After this period, if the original property hasn’t sold, repayment begins, often on an interest-only basis, as the goal is to sell the property rather than build equity in it.