Interim Financing, also known as "bridge" financing, is a short term credit instrument used to bridge gaps between the sale of your existing home and purchase of your new home. This sounds confusing, but it's surprising how often it is necessary. Interim financing comes in to save the day and solve conflicting possession dates. It is a simple, short term loan that is repaid in one lump sum when your new mortgage actually goes into effect.

Let's take a closer look at the process:

Bridge Financing is required when you are selling a home and buying a new home at the same time.  Unless you have your own funds available to temporarily use, bridge funds are used towards your down payment  on your new home when your current home's sale will close too late to use the proceeds directly.

For example:

§  You have purchased a new house for $300,000 and you will take possession on July 1st. You need 10% ($30,000) to put down on your new home.

§  At the same time, you sell your current home for $250,000 with a closing date of August 1st. You own this home free and clear and will therefore receive $250,000 (less minor legal costs etc.) on August 1st.

§  The problem? You will not have your money to put down on or before July 1st to purchase your new home. This means that you will need to borrow $30,000 to pay for your new house one month earlier than you will receive the funds from your old house. You need Bridge Financing.

Bridge Financing is not cheap - it can be very expensive depending on where and when you get it. A lender charges a onetime fee up front for the service, and daily interest on the total amount used - usually at the rate of prime plus 4% (so based on today's rates that would be 6.25%).  Traditionally, a lender will allow you to have interim financing for a maximum of 45 days - so best to plan your sale and possession dates to land within this window.  Timing is everything! If you can anticipate the need for early funds or if you can change your closing dates to avoid interim financing, do so.  There are many savings in planning ahead.

As always, preparation is the key. If you think you may need an interim loan, talk with your realtor and mortgage agent. I can help you pre-plan, explore all the options, and walk you through the process.