Why Bridge Loans Are A Pain In The Rear

You finally found it. After months of searching, and an ever-growing family, you found “the one” that will suit all your needs. Bigger, better, newer, and any other attribute you could name, this one has it. What a relief. You set a closing date 3 months out and post your house up for sale. It’s ideal for first-time buyers so you should have no problem selling it, either. You list your house for sale, and naturally three offers come to the table. After speaking with your Realtor, you decide the best course of action is to sell one week after your purchase date, and take a bridge loan to cover the difference. Relief sets in.

The above scenario is played out hundreds or thousands of times per year in our real estate market. It makes sense. Why not sell your house after you move into the new one, thus giving you time to do any upgrades, cleaning, and to do your move over a period of time rather than in one day. Makes total sense, right?

Here’s why this doesn’t always work out as planned: Some lenders are no longer covering closing costs as part of the bridge loan. What does this mean? If you’re buying in Toronto you know what this means: Double Land Transfer Tax. This will add a huge bill to your already growing list of expenses that you must cover. Let’s look at a real-world example of what I mean:

You bought a house for $700,000 with 20% down.
You put down a $50,000 deposit on offer.
Your total down payment is $140,000 less the $50,000 you have put down, so $90,000 left.
PLUS: Land transfer tax in the range of $22,000 plus legals and closing costs. Make it $25,000 give or take.

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