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Originally Posted by Eff-1
So I heard a radio interview this weekend that I thought was interesting.
Because the market is slow, an increasing amount of offers now include a subject to sell clause.
For those who don't include a clause, there is an increasing number of people who have to turn to bridge financing to help close on the place they bought before selling their current place.
Little did I know, that for bridge financing they charge 2-3% just for paperwork. And then 9-15% interest. So if you're borrowing $1M for bridge financing, that's $20k just for applying.
They used an example of a couple in South Surrey who bought a house but couldnt' find a buyer for their current house in time. They had to get bridge financing for $2M for 45 days and it cost $500 per day in interest, not including paperwork charges.
I could be totally wrong. This is just what I heard on this podcast.
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Quote:
Originally Posted by supafamous
This might vary by bank - when I bought my current house we needed bridge financing and TD didn't charge anything for the paperwork. The interest rate was about 2-3% higher than my mortgage so that sounds right. I recall owing the bank something like $2.3m for a 3 week period. That was "neat".  |
Quote:
Originally Posted by Eff-1
That's a good point. In the podcast, she did mention that the South Surrey couple were originally told no problem by their bank, but then had to turn to private lending which is what she must have been talking about.
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Quote:
Originally Posted by supafamous
Ah, that makes sense though odd that their bank didn't help them out - it's in the bank's interest to support bridge financing to ensure the deal goes through and they make a little bit of money through the temporary high interest loan. Going to a private lender to make it happen definitely makes it way more complicated and it makes sense why they had to pay extra.
When it first came up that we'd probably need it we weren't sure how difficult it'd be - we had been told by a broker that the process was like applying for another mortgage but our TD guy made it really easy - I think it was basically an extra half hour of time to get it all reviewed and signed. I was pleasantly surprised by it all.
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So we had to "bridge" when we were buying our house. For reference we are with TD.
What ended up happening was my mortgage advisor took out an extra large mortgage on the new place with a higher rate, but not quite bridge rate, so something like 3.5% at that time. Bridge would have been around the neighbourhood of 7-8%. He then added a HELOC to our townhouse so we can get more cash out and it saved us the expense of getting a bridge loan.
The problem with bridge loans are, the bank wants to see an accepted offer on the old place before they will bridge you, that's likely the reason why the couple in the story got rejected. My agent said as long as we had an accepted offer they can make it work. No accepted offer no bueno. With the accepted offer you can drag out the completion for months, you just have to pay.