Bridge Loan Calculator

Bridge Loan Calculator is a real estate calculator to calculate the monthly mortgage payments for multiple-family homes or commercial buildings.

What is a bridge loan?

A bridge loan is a short-term loan that is needed by homeowners who want to buy a house before they sell their own home. Many people who are home-rich and cash-poor cannot afford to buy a second house without selling the one that they live in. A bridge loan gives these homeowners the ability to buy a house without having the funds. Homeowners will repay the bridge loan after they sell their current house.

Bridge Loans vs. Mortgage

A bridge loan is not designed to replace a traditional mortgage. A bridge loan is a temporary loan that helps current homeowners buy a house before they secure long-term financing. A traditional mortgage is used when a homebuyer tries to buy a house where they have the cash for a down payment. A bridge loan is used when the existing homeowner does not yet have money for a down payment to buy a new house. That's when they can use a bridge loan as a down payment for their new home. They can then raise funds by selling their old home to pay off the bridge loan.

Pros and cons of bridge loans

There are benefits and disadvantages to getting a bridge loan.

Pros of bridge loan

Bridge loan offers homeowners the convenience of buying a new house before they sell their existing home. If a homeowner needs to make an offer to buy a house that they think is a bargain or a dream house, a bridge loan gives them the advantage of buying the house without having enough cash to close the transaction. Borrowers get access to a source of funding with a bridge loan to buy a new house instead of waiting to sell their existing home to have enough funds for a house. Payments can often be deferred until the homeowner sells their own home or bridge loan lenders may allow the homeowner to make interest-only payments.

Cons of bridge loan

While a bridge loan is beneficial for many homeowners, it does come with a cost. Bridge loans have higher interest rates than traditional mortgages, and there are closing costs and fees that you need to pay which will drive the cost of buying a house. A bridge loan is more expensive than a home equity loan or a HELOC. If your house doesn't sell quickly enough after you get the bridge loan, you might be forced to sell your home at a lower price to repay the bridge loan.

Bridge loan vs. Home equity loan

Before getting a bridge loan, you should compare the bridge loan to a home equity loan. Even though both loans use your home as collateral, a home equity loan offers much lower interest rates. A home equity loan is a long-term loan that can last from 5 to 20 years, and the interest rate is fixed so the borrower doesn't face any surprise on payments down the road. This gives the homeowner plenty of time to pay back the lender whereas a bridge loan requires the borrower to repay the loan in a short period. The downside of a home equity loan to a bridge loan is that you need to have substantial equity in your current home.

Bridge loan vs. HELOC

You can also compare a bridge loan to a HELOC. Just like a home equity loan, a HELOC is a secured loan using your home as collateral. A HELOC is like a credit card where the lender gives the borrower a line of credit that they can use. It gives the borrowers the advantage of borrowing only what's needed, and the borrower is only required to pay interest on what's borrowed. A HELOC has a variable rate where the interest rate and monthly payments change over time. During the draw period of a HELOC, you don't have to repay the loan, just make interest payments. A bridge loan is a lump sum that you get whereas a HELOC loan gives you the flexibility of borrowing whenever is needed.