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What is a Bridge Loan?

The primary purpose of a bridge loan is to provide a short term loan until a more permanent one is in place. A bridge loan is a short term loan that is usually backed by high collateral, often someone's estate. Bridge loans often carry high interest rates because they are for sometimes large sums of money as well as their very small term.

Bridge Loans

If you have heard of a bridge loan then most times you have also heard of a caveat loan, which is synonymous with a bridge loan. Bridge loans are usually for people that need large sums of money fast. These loans can be very useful to someone that is waiting for future funds to be secured. Since it is a loan of convenience, it should only be used if you can afford the interest or if you are a corporation that can back it up with high collateral. The interest rate is sometimes considered high because of the fact that that the loan is for such a short length of time. In reality the annual percentage rate is really crammed into a few months making the payments much higher for those few months.

Finding a Bridge Loan

Getting the right funding can sometimes be a tough task no matter what type of loan you are looking for. Bridge loans, because of the nature and the amount, are very hard to find from a bank. Most people consider these loans to be very unpractical and can sometimes come from shady sources. The best place for someone looking for a bridge loan is to go to a reputable mortgage company. Most times mortgage companies will be able to accommodate a person that is in search of a bridge loan. Due to the volume of funds the person is looking for mortgage companies tend to be able to handle larger accounts such as that of a bridge loan.

Other Options

Do not feel obligated to get into a bridge loan if you are tight for money, there are still many choices that you have. Knowing all of your options can save you much money and time in both the short and long run. If you have the ability to take a home equity loan then this might be a better option for you or if you can borrow against your 401k then that too might be a better option. To say the least bridge loans are not cheap because of the nature of them. Since you are getting such a large amount of money for a short period of time the bank wants to make the most off of the loan as they can so inturn they charge a higher rate. If you are considering a bridge loan you should always speak with a professional lender and find out what your best option is.
National Rate Averages

Mortgage Rates

Product Rate
5/1 yr ARM 3.147%
1 yr ARM 3.299%
15 yr fixed 3.221%
30 yr fixed 3.815%

Home Equity Rates

* Updated Jun 7, 2012