Understanding the Costs of Bridge Mortgages: What You Need to Know

The Costs of Bridge Mortgages: What You Need to Know

Bridge mortgages are short-term loans that bridge the gap between purchasing a new property and selling an existing one. They can be beneficial for homeowners looking to move without waiting for their current home to sell. However, like any financial product, bridge mortgages come with costs that borrowers should understand. In this article, we will examine the various costs associated with bridge mortgages and provide the information needed to make an informed decision.

Bridge Mortgage Cost Breakdown

When considering a bridge mortgage, it’s crucial to comprehend the associated costs. Below, we detail the key costs:

Interest Rates

One significant cost of a bridge mortgage is the interest rate. These rates are typically higher than traditional mortgage rates due to the short-term nature and higher risk. The rate you receive depends on factors like credit score, income, and property loan-to-value ratio.

Origination Fees

Lenders charge origination fees for processing the loan, typically 1-3% of the total loan amount. These fees are paid upfront or added to the loan amount. It’s essential to consider origination fees when calculating the total bridge mortgage cost.

Appraisal Fees

Lenders require an appraisal of the collateral property before approving a bridge mortgage. Appraisal fees range from $300 to $500 and are usually paid by the borrower.

Legal Fees

Legal fees are another cost of bridge mortgages. Borrowers hire a real estate attorney to review loan documents and ensure the transaction’s legality. Costs vary based on the transaction’s complexity and attorney’s hourly rate.

Hidden Costs to Watch Out For

In addition to upfront costs, there are hidden costs to be aware of when considering a bridge mortgage, including:

• Prepayment penalties
• Extension fees
• Rate lock fees

FAQs

What is a bridge mortgage?

A bridge mortgage is a short-term loan that bridges the gap between buying a new property and selling an existing one, allowing homeowners to move without waiting for their current home to sell.

How long do bridge mortgages typically last?

Bridge mortgages usually have terms of 6-12 months, with some lenders offering longer terms based on the borrower’s needs.

Can anyone qualify for a bridge mortgage?

Qualifying for a bridge mortgage can be more challenging than a traditional mortgage, considering factors like credit score, income, and property loan-to-value ratio.

Are bridge mortgages a good option for all borrowers?

Bridge mortgages can be beneficial for homeowners needing to move quickly but may not be suitable for everyone. Borrowers should carefully weigh the costs and risks before deciding on a bridge mortgage.