Quick summary

Bridge loans and HELOCs both help homeowners access short-term funds, but they serve different problems. A bridge loan is a purpose-driven, short-duration loan to help buy a replacement property before the old one sells. A HELOC is a flexible, revolving credit line secured by your home that you can draw on for renovations, debt consolidation, or temporary cash needs. This guide compares costs, eligibility, risks, exit strategies, and real-world uses so you can choose the right tool for your situation.

How each product actually works

Bridge loans (how they work and typical terms)

  • Term: commonly 6–12 months, sometimes up to 24 months depending on lender and situation.
  • Purpose: short-term liquidity to complete a purchase or fund a quick renovation when a faster close is required.
  • Structure: can be interest-only or rolled into the principal; lenders often require evidence of a sale contract on the existing home or large down payment.
  • Cost: interest rates and fees are higher than conventional mortgages to compensate lenders for short duration and risk; typical ranges as of 2025 are often several percentage points above conforming mortgage rates (exact rates vary with market conditions and borrower profile).
  • Exit strategy: sale of existing property, refinancing into a permanent loan, or using proceeds from another loan.

HELOCs (how they work and typical terms)

  • Structure: a revolving line of credit secured by your home’s equity; during the draw period you can borrow, repay, and borrow again.
  • Typical timelines: draw periods usually 5–10 years, followed by a repayment period of 10–20 years.
  • Interest: usually variable and tied to an index (often prime) plus a margin; lenders may offer a fixed-rate conversion option for portions of the balance.
  • Cost & eligibility: lower initial rates than bridge loans when the borrower has usable equity and good credit. Combined loan-to-value (CLTV) limits commonly range up to 80%–90% depending on the lender and property type.
  • Use: ongoing access for renovations, debt consolidation, or bridging temporary shortfalls.

(Consumer Financial Protection Bureau: HELOC basics and lender rules.)

Side-by-side: pros and cons

Bridge loans — pros:

  • Fast close and predictable funding for a purchase.
  • Designed for one clear exit (sale or refinance) so underwriting can be tailored to the transaction.
  • Good for competitive markets where speed matters.

Bridge loans — cons:

  • Higher interest rates and fees.
  • Short term increases refinance or sale pressure.
  • Lenders may require more documentation and stronger borrower credit.

HELOCs — pros:

  • Lower rates (typically) than bridge loans if you have adequate equity.
  • Flexibility: draw only what you need, repay, and re-borrow.
  • Useful for staged projects (multiple repairs) or rolling cash needs.

HELOCs — cons:

  • Usually variable-rate—payments can rise if interest rates increase.
  • Some lenders can freeze or reduce the line if property values fall or borrower credit weakens.
  • Not always fast enough for immediate purchase funds unless already established.

Which situations favor a bridge loan

  • You must make a competitive, near-cash offer on a new home but won’t close until your current property sells.
  • Your sale is under contract but closing dates don’t match and you can’t manage two mortgages long-term.
  • You need short-term capital for a quick rehab that will be repaid by a near-term sale.

Real-world example from my practice: a family I worked with had a signed sales contract on their condo but the borrower needed to close on their new single-family home two weeks earlier. A six-month bridge loan allowed the purchase; they sold the condo three months later and paid the bridge off. The faster close saved them a potential bidding battle.

(See our deeper guide: Bridge Loans for Homebuyers: A Practical Guide: https://finhelp.io/glossary/bridge-loans-for-homebuyers-a-practical-guide/ )

Which situations favor a HELOC

  • You have substantial equity and need flexible funds for staged renovations, tuition, medical costs, or debt consolidation.
  • You want a lower-cost alternative to personal loans or credit cards and prefer to pay interest only on amounts you actually use.
  • You want a standing source of emergency liquidity tied to your home.

Practical note from my work: I often recommend a HELOC for clients planning multi-phase renovations because they can draw funds as each phase begins and avoid paying interest on the full project amount before work starts.

(Compare HELOC vs other home equity options: https://finhelp.io/glossary/home-equity-alternatives-helocs-vs-home-equity-loans-vs-cash-out-refinance/ )

Cost comparison and tax notes

  • Rates: HELOCs commonly start at lower variable rates when credit and equity are solid; bridge loans typically carry higher short-term rates and origination fees.
  • Fees: bridge loans often include origination fees, appraisal or exit fees; HELOCs can have annual fees, appraisal and closing costs, and sometimes inactivity fees.
  • Taxes: interest on HELOC debt may be tax-deductible if the proceeds are used to buy, build, or substantially improve the home securing the loan (see IRS guidance on home mortgage interest rules). Always confirm with a tax advisor before assuming deductibility (IRS: Home mortgage interest deduction).

Underwriting and eligibility checklist

  • Equity required: HELOCs usually require 15%–20% equity at minimum; lenders vary on CLTV limits. Bridge loans commonly require strong credit and clear exit plans (sale contract or refinancing ability).
  • Credit score: higher scores get better pricing. In my practice I generally see HELOC approvals at FICO 700+ for best rates; bridge lenders often look for similar or higher credit quality.
  • Documentation: proof of contract for bridge loans, income and property valuation for HELOCs. Prepare recent pay stubs, tax returns, and a current appraisal or broker price opinion as applicable.

Exit strategies and risk management

  • Always have a concrete exit plan: sale of existing home, refinance to a conventional mortgage, or payoff using other liquid assets.
  • Stress-test your timeline: what if your home doesn’t sell in 3, 6, or 12 months? Know the worst-case monthly cash flow if you must make payments on both properties.
  • Consider backup options: lining up a conventional mortgage pre-approval, or ensuring the HELOC has a conversion option to a fixed-rate term.

Common mistakes and how to avoid them

  • Mistake: assuming a bridge loan is the only fast option. Solution: if you already have a HELOC in place or qualify quickly, it can be cheaper and more flexible.
  • Mistake: underestimating total carrying costs (interest + fees + potential double mortgage payments). Solution: run a 12–month cost projection before borrowing.
  • Mistake: not checking lender terms that allow freezing or reducing a HELOC. Solution: read your HELOC agreement for suspension clauses and margin adjustments.

Decision checklist (quick)

  • Do you need funds immediately for a purchase? If yes, bridge loan is likely better.
  • Do you have equity and prefer flexible access for multiple uses? If yes, HELOC may be better.
  • Can you tolerate variable rates and possible payment increases? If no, pursue fixed-rate refinance alternatives or a bridge-to-perm product.

Frequently asked questions

  • Can I use a HELOC to buy a new house? Usually no, HELOC funds are slower to establish and most lenders won’t let you use a HELOC as a primary source of funds for a purchase unless it’s pre-approved and in place.
  • How long can a bridge loan last? Typically 6–12 months; some lenders extend up to 24 months but costs usually rise with longer terms.
  • Which is safer if home prices drop? Neither is risk-free. A HELOC can be frozen or reduced if property values fall; a bridge loan raises risk if your sale price drops or the property doesn’t sell.

Where to learn more

Professional takeaway and next steps

In my 15 years helping homeowners, the best choices come down to timing, clear exit plans, and realistic cost modeling. If you need speed and have a sale contract or strong buy-sell timeline, a bridge loan can save a purchase. If you have equity and want lower-cost, flexible access to funds, a HELOC often fits better.

Before you borrow:

  • Get a written cost estimate from lenders including interest, fees, and prepayment terms.
  • Build a conservative timeline and stress test the exit.
  • Talk with a mortgage professional and a tax adviser to confirm eligibility, pricing, and potential deductibility of interest.

Professional disclaimer: This article is educational and does not constitute personalized financial, tax, or legal advice. Your circumstances are unique; consult a licensed mortgage broker, tax professional, or financial adviser before acting.