Gap Mortgage Explained: Bridging the Funding Gap - InvestorDictionary

A gap mortgage, referred to as a Consolidation, Extension and Modification Agreement (CEMA), is a financial tool that acts as an interim loan. This interim loan allows for easier transfer of property rights.

Basics

According to InvestorDictionary.com, a gap mortgage is an interim loan used between the end of loans, or floor loans, while developing property, and the start of a permanent mortgage taken out by the person purchasing the property.

Purpose

A gap mortgages allows funding for a property to continue while it is going through the process of selling. According to AllBusiness.com, a developer of commercial or residential property may get a "floor loan" that covers a majority of the mortgage until a certain amount of the property is occupied. The gap loan acts as a bridge to the full amount of a mortgage until a property reaches the target amount of occupancy.

Considerations

Gap mortgages are largely a financial tool used by businesses involved in large commercial and residential developments. Once a building reaches target occupancy, the gap loan is retired as the payments for property come in. Procuring a gap loan will depend on a number of factors, including credit requirements from a bank, size of gap loan and purpose of the gap loan.