Understanding Bridging Loans: Finance Your Next Home Purchase

Bridging loans are a type of loan that is designed to help you move from one house to another. This type of loan is beneficial if you have to purchase a new house before you have sold your existing one. Essentially, this loan will allow you to borrow against the equity in your home and use it as a down payment on a new house. This type of loan is also referred to as a swing loan. 

Costs

This type of loan involves some costs to the borrower. You will be required to pay interest at the prime rate, or as much as 2 percent above the prime rate. You will also have to pay somewhere between $3000 and $6000 in closing costs, depending on the lender.

Pros and Cons

This type of loan will allow you to secure a house before you have sold your current home. If you found your "dream house," this could be a good tool to use to purchase it. The downside to this type of loan is that it requires you to pay extra money for closing costs and additional money every month on your payment.