Background

Bridge loans exist to solve timing problems in real estate — for example, when you must close on a purchase before your current home sells or before a mortgage commitment is finalized. Lenders created these products to give borrowers fast access to capital tied to real estate collateral. They saw wider use in the late 20th century as housing markets and transaction timelines grew more complex.

How bridge loans work

  • Structure: A bridge loan is typically secured by the borrower’s real property (the home being sold, the new purchase, or both). Lenders charge higher interest and fees because the loans are short-term and riskier.
  • Term and repayment: Terms commonly range from 3–18 months. Some require monthly interest payments; others roll interest into the loan principal (deferred interest). An exit event — sale of an existing home or conversion to a mortgage — is expected to repay the loan.
  • Costs: Expect higher interest rates and origination fees compared with standard mortgages. Typical market ranges in 2025 vary by lender and borrower profile; plan for rates noticeably above long-term mortgage rates and for closing costs.

When to consider a bridge loan

A bridge loan can make sense when:

  • You must move quickly to win a competitive purchase (e.g., all-cash or fast-closing buyer).
  • Your current home is under contract but the closing date doesn’t coincide with the purchase closing.
  • An investor needs to secure a deal before they liquidate another property or obtain long-term financing.

When it’s usually not a good idea

  • You lack a realistic plan to sell or refinance within the loan term.
  • The cost of bridging (interest + fees) erases the financial benefit of the purchase.
  • You have alternatives with similar speed and materially lower cost (e.g., a renovation loan, HELOC, or a mortgage rate lock extension).

Real-world example (professional context)

In my practice I’ve helped a buyer who had an accepted offer on a new home but hadn’t yet sold her current property. We used a short bridge loan secured by her existing home to close on the new purchase; six weeks later her sale closed and the bridge was repaid. The key: we modeled worst‑case timelines and fees up front so she wouldn’t face a surprise if her sale delayed.

Eligibility and lender requirements

Borrowers typically need:

  • Adequate equity in existing property (often 20%+),
  • A reasonable credit score and verifiable income,
  • A clear exit strategy (sale contract, mortgage preapproval, or refinance plan).

Lenders may also require personal guarantees or cross‑collateralization.

Costs, risks, and common pitfalls

  • Higher interest rates and fees than permanent mortgages.
  • Deferred interest can compound, increasing payoff amount.
  • If the original property doesn’t sell, you may need to refinance under worse conditions or carry two mortgages.
  • Title and lien complications when a lender takes cross‑collateral security.

Professional tips (actionable)

  1. Model multiple timelines: run best, likely, and worst‑case scenarios for sale/refinance dates and compute total cost in each.
  2. Confirm payment structure: monthly interest vs deferred interest, and check for prepayment penalties.
  3. Compare alternatives: a HELOC, bridge-to-permanent loan, or negotiating a rate lock extension for your mortgage can be cheaper. See our guide on Understanding Mortgage Rate Locks and When to Pay for an Extension.
  4. Think about tax and portfolio effects: carrying short-term high-cost debt changes cash flow and debt-to-income ratios that affect future mortgage underwriting. For multi-property investors, coordinate with your refinance timing strategy; read more on Refinance Strategy for Multiple Mortgages: Staggered Timing.

Common questions

Q: What if I can’t sell my old property before the bridge loan matures?
A: You’ll need a back-up plan — refinance the bridge into a longer-term mortgage, extend with the lender (if available), or sell other assets. Failure to plan may result in carrying costs or default.

Q: Are bridge loans federally insured or regulated like FHA loans?
A: No. Bridge loans are private, not federally insured, so underwriting, terms, and protections vary by lender. (See consumer resources at the Consumer Financial Protection Bureau.)

Authoritative sources

Disclaimer

This article is educational and not personalized financial advice. Consult a qualified mortgage professional or financial advisor before using a bridge loan — especially when timing and large sums are involved.

If you want a quick comparison worksheet or sample amortization scenarios for a proposed bridge loan, I can provide a template to run your numbers.