bridge loan
A short-term loan used to bridge a financing gap until permanent financing is secured or an existing obligation is removed, commonly used in real estate transactions.
Example
“She took a bridge loan to buy the new house before selling the old one, repaying it when the first home sold.”
Memory Tip
BRIDGE loan = spans a financing GAP. Short-term, until permanent funding arrives.
Why It Matters
Bridge loans matter because they help people navigate timing gaps in major financial transactions, particularly when buying a new home before selling an existing one. Understanding how bridge loans work can save you thousands in interest and help you avoid selling your current property at a disadvantage just to meet a closing deadline.
Common Misconception
Many people mistakenly believe bridge loans are a long-term financing solution or a substitute for traditional mortgages. In reality, bridge loans are strictly short-term solutions lasting anywhere from a few weeks to a few months, and they typically carry higher interest rates because of their temporary nature and increased lender risk.
In Practice
Suppose you find your dream home priced at 350,000 dollars but your current house has not yet sold. You could take out a bridge loan for 200,000 dollars at 8 percent interest to cover part of the down payment and closing costs. Once your original home sells for 400,000 dollars, you use those proceeds to pay off the bridge loan within 60 days, then complete your permanent mortgage on the new property.
Etymology
BRIDGE (spanning a gap) LOAN. A loan that BRIDGES the gap between two financing situations.
Common Misspellings
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See Also
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