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Bridge Loan - Investopedia
Bridge Loan - Investopedia
Bridge Loan
By JULIA KAGAN | Reviewed By ERIC ESTEVEZ | Updated May 29, 2020
TABLE OF CONTENTS
What Is a Bridge Loan?
How a Bridge Loan Works
Example of a Bridge Loan
Businesses and Bridge Loans
EXPAND +
Bridge Loans in Real Estate
These types of loans are also called bridge financing or a bridging loan.
KEY TAKEAWAYS
A bridge loan is short-term financing used until a person or company secures
permanent financing or removes an existing obligation.
Bridge loans are short term, typically up to one year.
These types of loans are generally used in real estate.
Homeowners can use bridge loans toward the purchase of a new home while they
wait for their current home to sell.
These loans normally come at a higher interest rate than other credit facilities such as a
home equity line of credit (HELOC). And people who still haven't paid off their mortgage end
up having to make two payments—one for the bridge loan and for the mortgage until the old
home is sold.
Important: Bridge loans provide immediate cash flow, but come with high interest
rates and usually require collateral.
Bridge loans typically have a faster application, approval, and funding process than
traditional loans. However, in exchange for the convenience, these loans tend to have
relatively short terms, high interest rates, and large origination fees. Generally, borrowers
accept these terms because they require fast, convenient access to funds. They are willing to
pay high interest rates because they know the loan is short-term and plan to pay it off with
low-interest, long-term financing quickly. Additionally, most bridge loans do not have
repayment penalties.
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