Buying and selling a home at the same time can be stressful, especially when the closing dates do not line up. In Ontario, bridge financing is a common solution that allows homeowners to access the equity from their current home before the sale officially closes.
Bridge loans are frequently used in competitive real estate markets and can provide the flexibility needed to move forward with a purchase without rushing the sale of your existing property.
This guide explains how bridge financing in Ontario works, the costs involved, and when it may be the right option.
What Is Bridge Financing
Bridge financing is a short-term loan that allows homeowners to use the expected proceeds from the sale of their current home before that sale has closed.
It is most commonly required when:
• The purchase of a new home closes before the sale of the existing home
• Sale proceeds are needed for the down payment
• Closing dates are days or weeks apart
The bridge loan “bridges” the timing gap between the two transactions.
How Bridge Financing Works
Once your home sale is firm and unconditional, the lender advances funds based on your net sale proceeds. These funds are typically sent directly to your lawyer to be used toward the purchase of your new home.
Bridge financing is:
• Short term
• Interest only
• Automatically repaid when the sale closes
There are no monthly payments during the bridge period. Interest accrues daily and is paid in full once the sale completes.
How the Bridge Amount Is Calculated
Lenders do not lend based on the full sale price. Instead, they calculate bridge financing using your net equity.
This includes:
• Sale price
• Less existing mortgage payout
• Less real estate commissions
• Less legal fees and adjustments
The remaining amount is the net sale proceeds. Some lenders apply a safety buffer and may advance slightly less than 100 percent of this figure.
Typical Bridge Financing Timeframes in Ontario
Most lenders allow bridge financing from 1 to 90 days. In some situations, this can be extended to 120 days, depending on the lender and strength of the file.
The sale must be firm with no outstanding conditions.
What Bridge Financing Can Be Used For
Bridge financing can be used for:
• Down payment on the new home
• Land transfer tax
• Closing costs
• Interim funding between purchase and sale
It is not intended as long-term financing and cannot replace a mortgage.
Bridge Financing Costs
Bridge loan interest rates in Ontario typically range from:
Prime plus 2 percent to prime plus 5 percent
Interest is charged only for the exact number of days the bridge is used.
Legal fees generally range from approximately 300 to 800 dollars depending on the lender and transaction complexity.
Bridge Financing Options in Ontario
Bank Bridge Financing
Major banks such as TD, Scotiabank and BMO offer bridge financing tied directly to their mortgages.
Pros include easier coordination and competitive pricing.
Cons include conservative equity calculations and limited flexibility.
Monoline Lenders Through Mortgage Brokers
Lenders such as First National, MCAP and RMG offer strong bridge programs.
They are very familiar with purchase and sale transactions and often provide competitive rates, though documentation requirements can be stricter.
Using an Existing HELOC
If a home equity line of credit is already in place, it may sometimes replace bridge financing.
This can offer lower interest costs but must be set up in advance and will count toward debt servicing.
Private Bridge Financing
Private bridge loans are typically used when traditional lenders are not an option.
They offer flexibility but come with significantly higher interest rates and additional fees.
Risks to Understand
The home sale must close as scheduled. Bridge loans are due immediately upon sale closing, and extensions are not guaranteed. Any delay can increase interest costs quickly, making proper planning essential.
Final Thoughts
Bridge financing can be a powerful tool when buying and selling a home at the same time. When structured correctly, it allows homeowners to purchase confidently without rushing their sale or disrupting long-term mortgage plans.
Because bridge loans are short term and time sensitive, working with an experienced Ontario mortgage professional can help ensure the financing is set up properly and costs are kept under control.