Bridge Loans in Canada

What is a bridge loan?

**A bridge loan is a short-term secured loan that covers the financial gap between purchasing a new home and selling your existing one, allowing you to complete both transactions without timing them perfectly.** Bridge loans are sometimes called **interim financing** or **gap financing** because they bridge two real estate transactions that do not close on the same date. In a typical home purchase scenario, you sell your current home first, receive the proceeds, and then use those funds as a down payment on your new property. But real estate timing rarely works that smoothly. Your new home might close weeks or months before your existing home sells, leaving you short on the funds needed to complete the purchase. A bridge loan solves this by advancing you the equity from your existing property before the sale closes. The loan is **secured by your current home** and repaid in full once that property sells. During the bridge period, you make **interest-only payments** on the outstanding balance, keeping monthly costs manageable. Canadian banks, credit unions, and private lenders all offer bridge financing, but with different requirements. Most bank bridge loans require a **firm sale agreement** on your existing property, meaning you already have a signed, unconditional offer from a buyer. Private lenders may offer bridge loans without a firm sale, but at higher interest rates ranging from 8% to 15% ([FCAC: Mortgages](https://www.canada.ca/en/financial-consumer-agency/services/mortgages.html)). The Financial Consumer Agency of Canada (FCAC) requires all federally regulated lenders to provide full cost of borrowing disclosure before you sign a bridge loan agreement. This includes the interest rate, all fees, and the total cost over the loan term ([FCAC: Cost of Borrowing Disclosure](https://www.canada.ca/en/financial-consumer-agency/services/rights-responsibilities/rights-clear-disclosure.html)). Bridge loans in Canada typically range from 90 days to 12 months in duration, with most bank bridge loans structured around 90 to 120 days. The loan amount is based on the equity in your current home, minus any outstanding mortgage balance and closing costs. For example, if your home is selling for $600,000, you owe $300,000 on the mortgage, and closing costs total $15,000, the maximum bridge loan would be approximately $285,000. Bridge financing has grown in demand in competitive real estate markets like Toronto and Vancouver, where sellers often reject conditional offers. Having bridge financing in place lets you make a firm purchase offer on a new home without waiting for your current home to sell, giving you a significant advantage in bidding situations.

Types of bridge loans available in Canada

• Bank bridge loans tied to an existing mortgage with the same lender. These offer the lowest rates (prime + 2% to 4%) but require a firm, unconditional sale agreement on your current home before the lender releases funds
• Credit union bridge loans that may offer more flexible terms than the major banks. Some credit unions will advance bridge financing with a conditional sale, depending on the property and your overall financial profile
• Private bridge loans for borrowers who do not have a firm sale agreement or who do not qualify with a bank. Private lenders charge higher rates (8% to 15%) and fees (1% to 3% of the loan amount) but approve faster and accept more risk
• Open bridge loans with no fixed repayment date, allowing you to repay anytime within the maximum term. These provide flexibility when your sale closing date is uncertain, though they carry slightly higher rates
• Closed bridge loans with a specific repayment date matching your sale closing. These offer lower rates because the lender knows exactly when the loan will be repaid
• Second mortgage bridge loans that sit behind your existing first mortgage, providing access to equity without refinancing your primary mortgage. Rates are higher because the lender holds a subordinate position

Who qualifies for a bridge loan in Canada?

• ✓Canadian citizen or permanent resident, at least 18 years old (19 in British Columbia, Nova Scotia, and New Brunswick)
• ✓Sufficient equity in your current home to cover the bridge loan amount. Lenders calculate available equity as the sale price (or appraised value) minus the outstanding mortgage balance and estimated closing costs
• ✓Good credit score, typically 650 or higher for bank bridge loans. Private lenders may accept lower credit scores but charge higher rates to compensate for the added risk
• ✓Verifiable income sufficient to carry both your existing mortgage and the bridge loan interest payments during the overlap period
• ✓For bank bridge loans: a firm, unconditional sale agreement on your current home with a confirmed closing date. Private lenders may waive this requirement
• ✓An accepted purchase agreement on the new property, confirming the amount of bridge financing needed and the closing timeline
• ✓Homeowner's insurance on both properties during the bridge period

Bridge loan rates, amounts, and terms in Canada

**Bridge loans in Canada carry interest rates ranging from prime + 2% to prime + 4% at major banks and credit unions, translating to approximately 6.5% to 9% at current Bank of Canada rates, while private bridge lenders charge 8% to 15% with additional lender fees of 1% to 3%.** The rate you receive depends on whether you have a firm sale agreement, your credit profile, and the loan-to-value ratio on your existing property. Bridge loan amounts in Canada typically range from $25,000 to over $1,000,000, depending on the equity in your current home. The maximum amount is calculated as the sale price of your existing home, minus the outstanding mortgage balance, minus estimated closing costs (legal fees, real estate commissions, land transfer tax adjustments). Most lenders cap bridge loans at 80% of the equity in the property being sold. The bridge loan term is usually 90 days to 12 months. Bank bridge loans tied to a firm sale agreement are typically structured for 90 to 120 days because the closing date is already set. Private bridge loans can extend to 12 months for borrowers who have listed their home but do not yet have a buyer. **Cost breakdown for a typical $200,000 bridge loan over 90 days:** - Interest at prime + 3% (approx. 8%): $4,000 - Lender administration fee: $500 to $1,000 - Legal fees (bridge loan setup): $800 to $1,500 - Appraisal fee (if required): $300 to $500 - Total estimated cost: $5,600 to $7,000 For a private bridge loan at 12% with a 2% lender fee: - Interest over 90 days: $6,000 - Lender fee (2% of $200,000): $4,000 - Legal and appraisal fees: $1,100 to $2,000 - Total estimated cost: $11,100 to $12,000 The Bank of Canada's policy rate directly influences bridge loan rates at banks and credit unions. When the overnight rate moves, variable-rate bridge loans adjust accordingly ([Bank of Canada: Key Interest Rate](https://www.bankofcanada.ca/core-functions/monetary-policy/key-interest-rate/)). The maximum legal interest rate in Canada is 47% APR as set by the Criminal Code, section 347. Any bridge loan exceeding this rate is a criminal offence ([Criminal Code s. 347](https://www.canada.ca/en/department-finance/programs/consultations/2022/fighting-predatory-lending/consultation-criminal-rate-interest.html)). Always calculate the effective APR including all fees, not just the stated interest rate. Be cautious of lenders who quote low monthly rates without disclosing administration fees, legal fees, or early repayment penalties. A responsible lender provides a complete cost breakdown before you commit.

Pros and cons of bridge loans

Bridge loans vs. other short-term financing options

Tips for getting a bridge loan in Canada

1. 1.Price your current home realistically before committing to a bridge loan. An overpriced listing that sits on the market extends your bridge period and increases your total interest costs. Get comparable sales data from at least two real estate agents before listing
2. 2.Secure a firm sale agreement on your existing home before applying for a bank bridge loan. Bank rates are significantly lower (prime + 2% to 4%) than private lender rates (8% to 15%), and the key requirement is a signed, unconditional offer
3. 3.Calculate the full cost of bridge financing before committing, including interest, administration fees, legal fees, and appraisal costs. Compare this total against the cost of renting temporarily between selling and buying
4. 4.Build a financial cushion for the overlap period. Budget for two sets of property taxes, two insurance policies, two utility bills, and the bridge loan interest. Running out of cash during the bridge period creates serious financial pressure
5. 5.Negotiate a longer closing date on your purchase if possible. A 90-day close instead of 30 days gives your current home more time to sell, potentially avoiding the need for a bridge loan entirely
6. 6.If you do not have a firm sale and need private bridge financing, compare at least three private lenders. Rates, fees, and terms vary widely in the private lending market
7. 7.Ask your mortgage lender about bridge financing first. Many Canadian banks offer bridge loans to existing mortgage clients at preferential rates, and bundling with your current mortgage simplifies the process
8. 8.Have your real estate lawyer review the bridge loan terms before signing. Pay attention to prepayment penalties, extension terms, and what happens if your sale closing date changes

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