It is usually required that the homebuyer's current residence either be under contract or listed for sale in order to qualify for this type of loan. Terms vary among lending institutions, but typically the term on home bridge loans is six to twelve months. If the homebuyer's current residence sells sooner, it must be repaid in full immediately. These loans differ from traditional ones in that there is normally no monthly payment toward principal or interest. Instead, a home bridge loan is not amortized and is payable in full, including the interest that has accrued, at the end of the term.
Interest rates are higher than on traditional financing. The rate is figured by taking the current prime interest rate on the day of closing and adding a margin to that rate. For example, if the prime rate is five percent, the lender may tack on a two to three percent margin yielding a total rate of seven or eight percent. When considering a home bridge loan, it is imperative that one is sure the right choice is being made. It is a good idea to seek professional guidance in a matter of this magnitude.
