Bridge Financing in Ontario: When You Need to Close Fast

What Is Bridge Financing?

Bridge financing is a short-term loan designed to cover a temporary funding gap. In the mortgage context, it provides the money you need to close a transaction today while you wait for funds that are expected to arrive in the near future, typically from the sale of another property.

The term "bridge" is apt. The loan bridges the gap between two events: the closing date of your purchase and the closing date of your sale (or another known source of funds). The term of a bridge loan varies by lender and is set out in the commitment letter.

Bridge financing is fundamentally different from a standard private mortgage in that it is designed for a specific, short-term purpose with a clear and defined repayment event. It is not a long-term lending solution.

Common Scenarios for Bridge Loans

Buying Before Selling (Misaligned Closing Dates)

This is a common bridge financing scenario. You have sold your current home and purchased a new one, but the purchase closes before the sale. You need funds for the down payment and closing costs on the new home before the proceeds from your sale are available.

Example: You are purchasing a home in Hamilton closing on June 1, and your current home in Burlington is sold but does not close until July 15. You need bridge financing for 44 days to cover the gap.

Power of Sale

If your lender has initiated power of sale proceedings, you may face a deadline to either pay the arrears or refinance the mortgage. Some borrowers look at bridge financing to fund that payment while they arrange longer-term financing or decide how to sell the property. Whether this is possible depends on the lender and the file.

Construction Completion

If you are building a new home or purchasing a pre-construction property, there may be a period where your existing financing has expired or your construction draws are exhausted, but the project is not yet complete enough for permanent financing. Bridge financing may cover this gap.

Estate Settlement

When a property needs to be purchased or refinanced as part of an estate settlement, bridge financing may provide funds while the estate is being settled.

Business Liquidity

Business owners who need access to capital may use the equity in their personal property as security for a short-term bridge loan while waiting for business receivables, a property sale, or other expected funds.

Bank Bridge Loans vs. Private Bridge Loans

Bridge financing is available from both banks and private lenders, but the products differ in availability, cost, and speed. The table describes typical differences; each lender sets its own terms.

OAC. Rates subject to change. Conditions apply.

If you qualify for a bank bridge loan, it may be the less expensive option. However, many borrowers turn to private bridge financing because their bank will not offer a bridge loan (perhaps the mortgage is with a different lender, or the sale is not yet firm, or credit issues prevent qualification).

What Bridge Financing Costs

The cost of bridge financing depends on the source, the amount, and the duration. Because bridge loans are short-term, the total dollar cost can be easier to assess than the annual interest rate alone. Comparing the full cost, including fees and legal costs, is the best way to judge a loan.

Illustrative Example: $150,000 Bridge Loan for 60 Days

The figures below are assumptions used to show the arithmetic. They are not quotes or market averages.

OAC. Rates subject to change. Conditions apply.

Compare this to the cost of not closing your purchase on time. If you cannot close, you may lose your deposit, may face a claim from the seller, and may lose the property. The cost of a bridge loan should be weighed against those risks.

For a detailed breakdown of all mortgage-related fees, see our guide to private mortgage fees.

How the Process Works

The bridge financing process is designed to be quick because timing is usually the main concern.

1. Contact a licensed mortgage broker. Explain your situation, timeline, and the amount needed. Provide documentation of both the purchase and sale (if applicable).1
2. Property assessment. The lender evaluates the security property. In some cases, a drive-by appraisal or desktop valuation may be used instead of a full appraisal, depending on the lender and the property.
3. Commitment letter. The lender issues a formal commitment outlining the rate, fees, term, and conditions. Review this carefully with your lawyer.
4. Legal preparation. Both your lawyer and the lender's lawyer prepare the mortgage documents. If the bridge loan is being registered against a property that already has a mortgage, the existing lender may need to provide a postponement or the bridge loan may be structured as a second mortgage.
5. Funding. Funds are advanced through your lawyer's trust account. Lender fees, legal costs, and any prepaid interest may be deducted from the advance.
6. Repayment. When the triggering event occurs (your sale closes, your permanent financing is arranged, etc.), the bridge loan is repaid in full from the proceeds.

Risks to Understand

Bridge financing carries risk, particularly if the repayment event is delayed or does not occur as planned.

What Could Go Wrong

• Your sale falls through. If the buyer of your current home does not close, you are left with the bridge loan and no source of repayment. This is why lenders prefer firm, unconditional sale agreements.
• Your purchase price is higher than expected. Ensure you have a buffer in your bridge loan amount to cover unexpected costs at closing.
• The bridge term is too short. If your sale is delayed beyond the bridge loan term, you may need to renew or find alternative financing, which adds cost.
• Interest and fees reduce your equity. In a tight equity situation, the cost of bridge financing can reduce your net proceeds. Calculate the full cost before committing.

How to Minimize Risk

• Use bridge financing only when you have a firm, unconditional sale agreement on the property that will generate the repayment funds
• Build a buffer into the bridge loan term by asking for a longer term than you expect to need
• Work with an experienced broker who has arranged bridge financing before and understands the time-sensitive nature of these transactions
• Have your lawyer review all documents before signing, even if the timeline feels tight

Bridge financing addresses a timing gap. It does not change the underlying purchase or sale. The cost is the price of making the timing work, so it should be weighed against the risks of not closing on time.