Bridge Facility

Buy a home before yours is sold? An interim credit can help

They made an initial bid before they sold their residency in the western part of the town. "Given that the rental sector is currently like this, you are obliged to make choices without having all the responses you want," Mr Amelio states. There is such a great deal of interest in houses in sought-after areas of the town - especially within or near inner cities - that purchasers are often compelled to forgo reasonable terms such as apartment inspection and finance terms when making a bid, then keep their fingers crossed while hoping that their current house will sell as soon as the bidder conflict subsides.

If these sales and purchases do not coincide, specify the need for interim finance. In simple terms, a bridge facility is a short-term financial instrument that allows buyers to "close" the gaps between old and new mortgage loans by enabling them to draw on the capital in their present home as a down pay while basically having two homes at the same time while waiting to complete the sales of their present home.

It has become more and more widely used in recent years, says Ryan McKinley, a Senior Equity Management Developer at Vancouver City Savings Credit Union in Vancouver. "No matter how heated the property markets are today and in recent years, we have seen an upward trend in bridge financing," says McKinley.

" Though the mathematics behind the bridge is known to bewilder more than a few home purchasers, it is a relatively easy formula. In order to calculate the amount of a bridging credit, take the sale of the new home and then deduct the value of the mortgages and the original investment.

For the Amelios, the choice to go for bridge funding was also strategically important so that they could expand their new home without the hassle of reshaping their youngsters. "Bridging credits can provide enormous advantages without a great deal of effort," stresses Mrs. Amelio. In fact, the pair was paying about $780 in interest and management charges to fund their bridge credit, a relatively small amount that provided security during a potentially stressing deal.

Bridge loan affordable - usually for a maximum of 90 business days and only when there is a fixed, conditionally waivable sales contract for the borrower's current real estate - is another popular feature, says Luke Wile, a Red Key Mortgages Group member of the Red Key Group in Calgary.

Nevertheless, he finds that bridging credits are more costly than conventional mortgage products. Bridging credits are more risky, as Mr Wile says, as a house deal could fail technical before the deal is formally closed, which increases the chance that a buyer will find himself burdened with two mortgage charges, often substantial.

Whilst the flip side of bridge funding is minimised, there are some important issues to consider. Sandra Price, a real estate agent at East Coast Mortgages Brokers in St. John's, Nfld, says the first. "When you can get a homeowner' mortgages, you can usually get a bridge loans, but they will look at your creditworthiness and you will need a solid lending book to get this type of loans because of the higher risk," she stresses.

A further challenge: not every bank can offer a bridge solution. Sometimes, purchasers - especially those with lower ratings - may be compelled to seek funding from commercial creditors who demand much higher interest charges, often in the 19-21 percent bracket. "What the worse you can do is buy a home and then realise that you can't get a bridge loan because you don't have the capital or can't pay the debt," he cautions.

Collaborate with your home loan officer to create a comprehensive roadmap from your budget liquidity to your capacity to manage two loans in the unlikely case of a one-off adverseario. Overall, she would like to disburse the funds to ensure the bridge's financial security and adaptability.

"Bridging credits help everyone."