Monday, 20 August 2012

Bridge Financing-The Basics

In this week's blog, we discuss the issue of bridge financing. Recently, a client of mine purchased a new property and sold their existing home on the same day. Suffice it to say, it was an extremely long day, which could have easily been avoided had they purchased their new home on a date prior to the sale of their existing home. As they found out the hard way, the costs of bridging the gap between the sale and the purchase were relatively minor in comparison to the additional moving costs, stress and anxiety of closing two deals on the same day!

Gianina Kumar of CIBC, a mobile mortgage specialist, has contributed this piece and we thank her for her assistance.Gianina can be reached as follows:

Gianina Kumar
CIBC Mortgage Advisor
TEL:     1-888-414-4874
MOBILE: 416-854-4709
FAX:     1-877-404-3117 

"Bridge Financing 

Bridge financing is used when the SALE date on your existing property occurs after the PURCHASE date of your new home. To qualify for bridge financing, there must be an unconditional sale agreement on the home being sold.

The bridge covers the difference between the total down payment and the deposit paid upfront. The bank is essentially lending you the equity from the sale of your property for down payment on the new purchase.

An example illustrates this:

Jack and Jill are selling their current home on Sept 15-2012.  They are selling for $400,000 and after they pay off their $180,000 mortgage and closing costs (realtor fees), will have $200,000 in sale proceeds.

Jack and Jill have agreed to purchase a new home for $500,000 on Sept 1-2012, and paid a deposit of $50,000. They intend to put a total downpayment of $200,000 and will mortgage $300,000.

Here is the dilemma:  To purchase their new home on Sept 1-2012, Jack and Jill will need $150,000 (i.e. total down payment minus deposit) from their sale proceeds.  If and ONLY IF Jack and Jill have an unconditional sale agreement on their current home, the solution is bridge financing.

Since the bank knows 100% that Jack and Jill will be selling their home, they will LEND them the money they would have made from the sale.  So, the bank will give Jack and Jill a temporary loan (i.e. Bridge loan) for the $150,000 needed to close their new home on Sept 1-2012.  Here’s how it would look:

They would get a mortgage for $300,000 on Sept 1-2012 for the new property and also a bridge loan from the bank for $150,000. This ensures they have $500,000 to buy the house.  On Sept 1-2012 when their property sells, the sale lawyer will take the $150,000 equity left from the sale and pay out the bridge loan to the bank. Voila!!!

The biggest misconception about bridge financing is that people are not aware that you have to have a firm sale agreement on your home before the bank will agree to give you a bridge loan. Why? Because if you haven’t sold the property as yet, then you are still carrying the existing mortgage AND the new mortgage on the purchase.

In this example, the bridge would be needed for 15 days. Rates on bridge loans are typically 7% (prime + 4%). The total interest cost to bridge $150,000 at 7% over 15 days would be approximately $432. "

Thursday, 2 August 2012

Do You Need a Real Estate Professional?

In this weeks' blog, we tackle the issue of hiring a real estate professional. Many people don't know of a realtor or mortgage professional and you always need one when purchasing or selling real estate. Rather than do the  research yourself, why not get a referral from a trusted source who has worked with professionals before and tell you about them and the quality of their work! I work with many realtors and mortgage professionals and can put you in touch with one which suits your needs at no cost! If you ever need a referral, contact me. You won't be sorry!