Bridge Financing in Canada: How It Works, Rates, and Risks

Imagine you’ve sold your home but the closing date is after the closing date of the new home you’re buying. You need the equity from your current home to fund the down payment on your new one—but the timing doesn’t line up.

That’s where bridge financing comes in. A bridge loan is a short-term mortgage solution that lets you tap into your home equity before your sale closes, so you can complete the purchase of your new property without stress.

In this guide, we’ll cover:

• How bridge loans work in Canada
• Who qualifies and typical lender requirements
• Interest rates and costs
• Benefits vs. risks
• Real-life examples of bridge financing in action

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How Bridge Loans Work in Canada

A bridge loan is a temporary loan provided by your bank or lender to “bridge” the gap between the sale of your current home and the purchase of your new one.

• Secured against your current home: The loan uses the equity in your existing home as collateral.
• Short-term: Usually 30–120 days, though some lenders may extend up to 6 months.
• Paid off when your sale closes: The bridge loan is repaid from the proceeds of your sold property.

Example:

• You buy a new home closing June 1.
• Your old home sale closes July 15.
• You need a bridge loan for 6 weeks to cover the down payment.

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Eligibility and Requirements

Most “A lenders” (major banks, credit unions) offer bridge loans if:

• You have a firm purchase agreement for your new home.
• You have a firm sale agreement for your old home.
• Both closings are within a short time frame (usually ≤120 days).

Without a firm sale agreement, bridge financing is riskier and often not available through traditional banks. In that case, you may need a private lender at much higher rates.

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How Much Can You Borrow?

Typically, you can bridge up to the equity available in your current home.

Formula:
Bridge Loan = Sale Price of Current Home – Mortgage Balance – Closing Costs

Example Calculation:

• Sale price of current home: $700,000
• Mortgage balance: $400,000
• Closing/legal costs: $15,000
• Available equity: $285,000

If your new home requires a $200,000 down payment, the bridge loan can cover it.

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Bridge Loan Interest Rates & Costs

Bridge financing rates are higher than regular mortgage rates because they are short-term and specialized.

• Major banks/credit unions: Prime + 2% to Prime + 4% (≈7–9% in 2025).
• Private lenders: 10–15% or more, plus fees.

Other costs:

• Setup fees: $200–$500.
• Legal fees: Additional documentation and registration fees may apply.

Good news: Since these loans are short-term, the total interest paid is often manageable.

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Benefits of Bridge Financing

• Flexibility: Lets you buy before selling without stressing about timing.
• Stronger Offers: You can purchase your dream home without making your offer “subject to sale.”
• Peace of Mind: Avoids last-minute scrambling if your closings don’t align perfectly.
• Short-Term Tool: You only pay interest for the exact period you need.

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Risks and Considerations

While useful, bridge loans carry risks:

1. Sale Falls Through
   • If your old home doesn’t close, you may not be able to repay the bridge loan.
   • This could force you into higher-cost financing or a quick resale.
2. High Interest Costs
   • At Prime + 2–4%, interest adds up if the bridge lasts longer than planned.
3. Private Lending Trap
   • Without a firm sale, you may only qualify with private lenders at double-digit rates.
4. Market Risk
   • If home prices dip and your sale value is lower than expected, you may not have enough equity to repay the loan.

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Real-Life Scenarios

Scenario A: Smooth Closing

• Karen buys a new home closing May 15.
• Her old home closes June 30.
• She bridges $150,000 for 45 days.
• At 8% interest, her cost is roughly $1,480—a manageable price for peace of mind.

Scenario B: Sale Falls Through

• David secures a bridge loan for 90 days.
• His buyer backs out of the deal.
• He now has to carry both mortgages plus the bridge loan, creating financial strain.

Lesson: Only take bridge financing if your sale is firm.

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Bridge Loans vs. Alternatives

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Who Should Consider Bridge Financing?

Bridge loans are most helpful for:

• Move-up buyers upgrading from a starter home.
• Downsizers needing equity from their old property.
• Hot-market buyers making offers without “subject to sale” conditions.
• Families relocating with unavoidable timing gaps.

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Key Takeaways

• Bridge loans fill the gap between selling and buying.
• They’re short-term, higher-cost, but extremely practical in competitive markets.
• Always ensure your sale is firm before relying on bridge financing.
• Compare bank vs private lender options carefully.