Sometimes when you buy a home, the closing date for the home you are selling does not match the closing date of the house you are buying. Some of the typical reasons for a difference in closing dates might be: you want to get some renovations completed on the home being purchased before moving into it or perhaps you could not get the seller to give you the closing date that you really wanted. So if the closing date of the home you are buying is before the closing date of the home you have sold, you will need a bridge loan.

LetÂs use a real example so you can understand how a bridge loan amount is derived:

Price of the home being purchased: $450,000

Less: Amount being mortgaged: $360,000

Less: Deposit you give to the Realtor: $10,000

Equals: $80,000 Bridge Loan amount

The bridge loan amount is really your total down payment, less your deposit because the lender is advancing the rest of the mortgage money on the closing date for the home you are purchasing.

Using the above example, and some real dates, here is how the interest cost is calculated, for this particular bridge loan amount:

Client is buying a new house - closing date = April 30, 2009

Current home is not closing until = June 25, 2009

Clients need a Bridge Loan to cover them for 56 days until current house sells. Bridge Loan amount required is $80,000. LenderÂs interest rate = *prime rate (2.25%) plus 4%.

Bridge loan $80,000 X 0.0625 (interest) = $5,000

$5,000 divided by 365 days = $13.6986 (per diem cost)

$13.6986 X 56 days = $767.12

For a Bridge Loan advance that is greater than a certain amount, and is greater than 45 days, the lender will sometimes ask that the bridge loan be secured by way of a collateral mortgage on the property being sold. If a collateral mortgage is required, lawyers will often charge extra to do this (estimated at $500 and up). Some lenders will also charge a bridge loan "set-up fee", and some lenders do not. Remember also that a property sale must be firm before a lender will arrange a bridge loan for the borrower(s). And finally, lenders will not advance more than 90% of the value of the property being sold.

This post was written by Elizabeth Blair, a Licensed Mortgage Agent with Mortgage Edge in Richmond Hill, Ontario. Elizabeth services mortgage clients in Mississauga and all over the Greater Toronto area.

You can contact Elizabeth directly by phone at (905) 510-5785

by email at eblair@mortgageedge.ca

or you visit her website at: www.missmortgage.ca

Elizabeth is licensed with the Financial Services Commission of Ontario and is also a Member of IMBA (the Independent Mortgage Brokers Association of Ontario) www.imba.ca Lic # M08005880 Brokerage Lic # 10680 Head office is located at: 15 Wertheim Court, Suite 210, Richmond Hill, Ontario, Canada.