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We are buying and selling a house. Our new house closes one day before our current house closes, therefore we require a bridge loan to make the down payment. I would like to understand the risks involved and what questions I should be asking my banker or lawyer. IE: I understand this is high-interest loan, meant to be short term. But is there a risk of the loan going beyond that one day and the potential to pay alot more interest than anticipated? Thank you in advance!

  • You should read the above answer as it discusses bridge loans - if you still have questions I would narrow this down and ask specifically what it is you'd still like to know. – Grade 'Eh' Bacon Jul 18 '17 at 20:26
  • All it says about bridge loans in the other question is that they are risky, I would like to understand what the risks are and how to avoid them. – Hlick Jul 18 '17 at 20:27
  • Are you sure about that? Among other references, in one answer it says this: "You can get a bridge loan: you borrow money for a short term, at punishingly high interest. If your house doesn't sell, you're ****ed." In short, having a bridge loan will cost you money to set up, and it will cost you money for however long it remains outstanding. If you end up with your house not be sold / not being sold on time, you could be making 2 payments at once. – Grade 'Eh' Bacon Jul 18 '17 at 20:29
  • Thanks, yes that was helpful. But now that I know I will only need the bridge loan for one day, I'm wondering if there are any risks that aren't clear to me or previously mentioned by my banker/lawyer. Maybe this is very simple and I do not need to investigate further? I did revise my question to make it a little more specific. 'IE: I understand this is high-interest loan, meant to be short term. But is there a risk of the loan going beyond that one day and the potential to pay alot more interest than anticipated?' – Hlick Jul 18 '17 at 20:32
  • " I'm wondering if there are any risks that aren't clear to me or previously mentioned by my banker/lawyer." It's always nice to get a second opinion, but I wouldn't expect any advice on this site to supercede that of 2 separate professionals you've already asked [though having informal context that you can get online is nice, I understand]. Further, listing what you understand about bridge loans [ie: what have you already been warned about] would help clarify for someone reading if there's a particular item you've omitted. Your question as edited is a little better. – Grade 'Eh' Bacon Jul 18 '17 at 20:34
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But is there a risk of the loan going beyond that one day and the potential to pay alot more interest than anticipated?

Yes, there is. If your house doesn't sell [even if you have a buyer, something may go wrong and the sale may not go through], you will be left holding the mortgage for your new house, + the 'bridge loan' for your old house. You would then need to make 2 payments at the same time until your old house sells. You should ask your banker what sort of cashflow you would need to be able to make in order to pay both amounts. You should also be very clear about what happens if the term of the loan extends beyond what was originally intended.

You should ask your lawyer what potential issues might still make the sale of your old house go through. ie: does the buyer have some contingency period where they are still waiting on a building inspection, etc.

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  • Our buyer had no conditions, as far as I am aware they can't back out now. ' You should also be very clear about what happens if the term of the loan extends beyond what was originally intended. ' Would this be a question for the bank or lawyer? – Hlick Jul 18 '17 at 20:43
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    @Hlick, I would want to know what, exactly, are the repayment terms of the bridge loan. It's going to be a 1 day loan, what if I don't repay it in 1 day? What are the default terms? I think these are banker questions. – quid Jul 18 '17 at 20:45

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