The financial term “bridge financing” is defined as the act of providing capital to extend the gap between the time your existing home is sold and your new property is purchased. Usually, people refer to this type of financing as a loan that can be paid off relatively quickly. However, it really comes in many forms and serves many different needs.
The term “bridge financing” originally was used to describe a way of funding construction projects, but people today often use it as short-term or emergency cash. The opposite of bridge financing is long-term capital, which has terms lasting more than seven years.
There are several reasons why people might need bridge financing. For some, it is a way to save their home from foreclosure. For others, it can be a short-term solution until they receive a financial settlement or inheritance. For others, it provides extra cash needed for a home purchase or family event.
Unlike most loans that carry high interest rates and require collateral, bridge financing offers many benefits. Interest rates tend to be lower, because it is a short-term option. Also, many places allow for leniency in the type of debt that qualifies as bridge financing.
In the event of foreclosure, court systems have been known to require those who owe money from a recent home purchase to wait until after their existing mortgage has been satisfied before obtaining a new home loan. Bridge financing can be a way to keep a person from going into foreclosure, while also allowing them time to find a long-term solution for their financial needs.
Similarly, people who have recently completed a mortgage refinance might be able to use bridge financing instead of making another large payment on another home loan. This is especially helpful for those who have just purchased a new home.
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