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Because of
risk involved in making a loan on collateral with only possible future value (the future sale of old house), most lenders charge high interest rates on their bridge loans. The borrower typically must begin making these payments after six months if house still hasn't sold.
Most often, a bridge loan is used to pay off existing mortgage, with remainder (minus closing costs and prepaid interest) going toward down payment on new home. If after six months old home has not sold, borrower begins making interest-only payments on loan. When home eventually sells, bridge loan is paid off; if house sells with in six months, all unearned interests are credited to borrower.
In a perfect world you would have your house on market will potential buyers making offers before you make any offers yourself. However, because of fluctuating market conditions, getting timing right can be difficult. If you're willing to pay higher rates and fees that come with a bridge loan you can buy yourself some extra time.
While a bridge loan can get you th e house you want when you want it, it can be a pricey option in long run. If it's an option for you, it may be a better idea to borrow against assets such as stocks or your 401(k). This can save you a considerable amount of money.
Before you do anything talk to someone who has experience in financing side of real estate market. There are more options for borrowers every year and consequently process gradually gets more complicated. It pays to take time to understand what you're getting into.
