You’re in an exciting but stressful position. You’ve sold your current home, and after a long search, you’ve found your dream home. The only problem is that the closing dates don't line up perfectly. You are scheduled to take possession of your new home on September 15th, but the sale of your current home doesn't close until September 30th.

This creates a critical financial gap. The substantial down payment you need for your new home is tied up in the equity of your current home, which you won't receive until the sale is finalized. How do you bridge this gap without the deal falling apart?

The solution is a specialized, short-term financial tool called a bridge loan. This guide will explain exactly what bridge financing is, how it works, what it costs, and the key requirements you need to meet to get one, turning a potential logistical nightmare into a smooth transition.

What is a Bridge Loan?

A bridge loan is a temporary loan that allows you to access the equity from your current, sold home before the sale has officially closed.

A Short-Term Loan for Your Down Payment

The sole purpose of a bridge loan is to provide you with the funds for the down payment on your new property. It is designed to "bridge" the gap, which can be anywhere from one day to several months, between your purchase closing date and your sale closing date. It ensures that your real estate lawyer has the funds required to close your new home purchase on time.

The "Firm Sale" is Non-Negotiable

This is the single most important rule of bridge financing. You cannot get a bridge loan unless you have a firm, legally binding sale agreement on your current property. "Firm" means that all conditions on the sale (like financing or home inspection for your buyer) have been waived or fulfilled. The lender needs absolute, contractual certainty that the funds to repay the bridge loan are coming on a specific, scheduled date from your lawyer's trust account. A conditional sale is not sufficient.

A Clear Example of the Mechanics

Let's look at a common scenario in the Ontario market:

The Gap: You buy your new home for $1.2M, and it closes on September 15th. You sell your current home for $900k, and it closes on September 30th. For a 15-day period, you will legally own both properties.

The Loan: A bridge loan provides you with the necessary down payment for the new home on September 15th. When your old home sells on September 30th, the proceeds go to your lawyer. Your lawyer then uses those funds to pay back the bridge loan in full, with interest, and gives you the remaining profit.

Learn more about home equity loans in Ontario

Check your eligibility in under 60 secs.

See How Much I Qualify For

How to Qualify for a Bridge Loan

The qualification process for a bridge loan is straightforward, as it's directly tied to the two real estate transactions you are already undertaking.

The Two "Firm" Contracts

To approve a bridge loan, the lender will need to see two legally binding documents from your real estate lawyer:

A firm Agreement of Purchase and Sale for the new home you are buying.

A firm Agreement of Purchase and Sale for the home you are selling.

Without these two firm contracts, a bridge loan is not possible.

The Equity Calculation

The lender needs to be sure there is enough equity in your sold property to cover the bridge loan. They will calculate your "net equity" to determine the maximum loan amount. The calculation is:

Sale Price of Current Home - (Remaining Mortgage Balance + Real Estate Commissions + Legal Fees) = Net Equity

Your bridge loan is secured by this net equity. For example, if you sell your home for $900,000 and have a $500,000 mortgage and $50,000 in selling costs, your net equity is $350,000. You could get a bridge loan for any amount up to this $350,000.

The Lender's Role

It is important to know that a bridge loan is almost always provided by the same lender who is providing the new mortgage on the home you are purchasing. It is not a standalone product you get from a third party. The bridge loan is approved as part of a single, integrated transaction along with your new long-term mortgage.

A Broker's Role in the Process

As your mortgage broker, our role is to handle all of this for you. When we arrange your new mortgage pre-approval, we will discuss the possibility of needing bridge financing. Once you have your two firm contracts, we submit them to the lender and formally arrange the bridge loan on your behalf. We coordinate with your lender and your real estate lawyer to ensure the funds are approved and will be available on the correct closing date.

The Cost of a Bridge Loan

A bridge loan is a convenient and powerful tool, but it is not free. The costs are a combination of interest and a one-time administrative fee.

Interest Rates

The interest rate on a bridge loan is significantly higher than a standard mortgage rate. This is because it is a very short-term, specialized loan. The rate is typically calculated as the lender's Prime Rate + a premium, which can range from an additional 2% to 4% or more.

It's crucial to remember that you only pay this high interest rate for the very short period that the loan is outstanding (the "bridge period").

Fees

Most lenders also charge a one-time setup or administrative fee to arrange the bridge loan. This fee typically ranges from $250 to $500. Your real estate lawyer may also charge a small additional fee for administering the loan and payout.

A Clear Cost Calculation Example

Let's create a realistic example to see the true cost.

You need a $200,000 bridge loan.

The "bridge period" between your purchase and sale is 15 days.

The interest rate is Prime (let's say 6.0% as of August 2025) + 3.0%, for a total annual rate of 9.0%.

The lender's setup fee is $500.

The interest cost is calculated on a per-diem (daily) basis.

The Formula: (Loan Amount x Annual Rate) ÷ 365 days x Number of Days = Interest Cost

The Calculation: ($200,000 x 0.09) ÷ 365 x 15 = $739.73

The total cost of the bridge loan would be:

$739.73 (Interest) + $500 (Fee) = $1,239.73

As you can see, while the interest rate seems high, the short duration of the loan keeps the actual cost quite reasonable. For most homeowners, paying around $1,200 is a very small and worthwhile price for the flexibility of being able to buy their dream home without having to perfectly and stressfully align their closing dates.

Your Path to a Smooth Transition

Bridge financing is an essential and very common tool in the Ontario real estate market. It provides a simple solution to a complex logistical problem, turning a potential deal-breaking crisis into a smooth and manageable process.

The key to a successful bridge loan is careful planning and having firm sale and purchase agreements in place. It’s a standard part of the home-moving journey that we, as brokers, handle for our clients every single day. By understanding how it works, you can remove the stress and uncertainty from the process.

If you're planning to buy and sell a home, let's build a strategy that includes a seamless transition. Contact our brokerage today, and we can get you pre-approved for your next mortgage and discuss your bridge financing options to ensure you're prepared for every step of the journey.

Get Personalized Advice

with an Award-Winning Mortgage Broker

4.9 from 812 reviews

Schedule My Call