Bridge Loan Calculator

A bridge loan — also called a swing loan or gap financing — is short-term borrowing that covers the interval between two events, most commonly buying a new home before the existing one has sold. Terms typically run 6 to 12 months, and the structure differs from ordinary lending in three important ways.

• Interest-only payments. You service the interest monthly and repay the entire principal as a balloon when your exit event happens. Nothing amortizes.
• Priced with points. Expect 1-3 points (1-3% of the loan) charged upfront, plus appraisal, title and origination fees.
• Rates well above conventional. Commonly 2-5 percentage points over a standard mortgage, reflecting the short term and the risk that your exit slips.

That last line is the one to pay attention to. The loan is quoted at 10.5%, but because the points are absorbed over only nine months rather than spread across years, the true annualized cost is 13.17%. The shorter the bridge, the more the fees hurt — an identical loan repaid in four months annualizes above 16%.

Bridge loans are underwritten on the assumption that a specific event will happen by a specific date. The entire risk of the product sits in that assumption.

If your existing property has not sold when the term expires, you face an extension — usually costing additional points — or a default on a loan secured against your home. In a slowing market this is not a remote scenario, and it is the reason bridge lending is considered high-risk borrowing rather than a routine financing choice.

Before taking one, work through these:

1. Price the extension now. Ask what a 3-month extension costs and whether it is guaranteed or at the lender's discretion. Build that into your worst case.
2. Stress-test the sale price. If your existing property sells for 10% less than you expect, does the proceeds still clear the bridge balance?
3. Compare against a HELOC. If you have equity and time to arrange it, a HELOC is typically several points cheaper and carries no balloon date. Lenders often will not open one on a property already listed for sale, so this has to be arranged in advance.
4. Consider a sale contingency instead. Making your purchase contingent on selling costs you nothing but weakens your offer. In a buyer's market that trade is often worth it; in a competitive market it may not be.

Bridge financing is a legitimate tool when the timing genuinely cannot be reconciled another way. It is an expensive way to avoid moving twice.