Bridge financing--which is also referred to as a bridge mortgage, bridge loan, a swing loan or bridge financing--is a short-term, interim loan to assist the borrower until permanent loan arrangements can be made. A bridge mortgage requires a piece of real estate as collateral for the mortgage and is generally used when a homeowner buys a new home before selling an existing home. The borrower takes a bridge loan out on the existing property to leverage the equity in the property to buy the new home until the old home sells.

Rates

The interest rates for bridge mortgages are typically higher than traditional mortgage rates because it is a short-term loan and puts the lender at more risk than a long-term mortgage. Bridge loans tend to be in second lien position, behind the first mortgage.

Terms

Terms for bridge mortgages are short-term, which means that the terms are usually less than one year. A bridge loan simply "bridges" the timeframe between the time the borrower purchases the new property and the time they sell the old property.

Distribution

Bridge mortgages are funded in lump sum amounts to the borrower. After the loan closes, the borrower receives a check for the amount of the mortgage and the borrower pays interest on the full amount of the bridge mortgage.

Use

The primary use of a bridge loan is leverage, providing the borrower with the money to put a new down payment on a new home before his old home sells. Other borrowers may use bridge financing to obtain the funds they need to make necessary repairs in order to sell faster.

Benefits

The three main benefits to using a bridge mortgage are that it provides the borrower with money to buy a new property, it allows the borrower to move before the old property sells, and the loan processing tends to be quick.

Source:

Mortgage QNA: What is a Residential Bridge Loan

LoanSafe.org: Benefits of a Bridge Loan

WiseGeek: What Is Bridge Financing?