What is a bridge loan in real estate?

When you are selling one Calgary home and buying another, the timing rarely aligns perfectly. A bridge loan fills the gap between your new home's closing date and the proceeds from your existing home's sale landing in your account.

How a bridge loan works

Your lender advances the funds needed to close on the new property, secured against the equity in the home you are selling. Interest accrues daily on the outstanding balance. When your existing home closes, the lawyer's trust account releases the net proceeds to repay the bridge loan. You pay only for the days the loan is outstanding.

Typical terms in Alberta

Bridge loan terms in Alberta typically run 30–120 days. Most major chartered banks and credit unions offer bridge financing. The interest rate is generally prime plus 2–3%, making the total cost modest on a short-term basis. On a $300,000 bridge at 7.5% for 45 days, the interest cost is roughly $2,775 — well worth the flexibility of not having to time two transactions perfectly.

What lenders require

The critical requirement for most Alberta lenders is a firm sale agreement on the departing property — that is, an accepted offer with all conditions waived. A listing agreement alone is not sufficient. Some lenders will consider a bridge without a firm sale in exceptional circumstances, but expect higher rates and stricter terms.

You will also need sufficient equity in the departing property to cover the bridge amount, a mortgage commitment on the new property, and a completion date on the new purchase that precedes the completion date on the old sale.

Bridge loan vs HELOC

A Home Equity Line of Credit (HELOC) is an alternative for buyers who have significant equity and whose existing lender offers a HELOC. The advantage of a HELOC is that it does not require a firm sale — but it does require at least 20% equity and is a permanent product that needs to be paid down after the sale. A bridge loan is purpose-built for this transaction type and is discharged automatically at closing.

Ryan's approach

When Ryan Van Spengen lists a home for a client who is also buying, he coordinates possession dates on both transactions to minimise the bridge loan period. A well-negotiated possession date on the new purchase — set one to two weeks after the existing home's possession date — often eliminates the need for a bridge loan entirely. When a bridge is unavoidable, Ryan provides the net-proceeds estimate your lender needs to structure the financing.

Frequently asked questions

This page is for general information only and does not constitute legal or tax advice. Consult a qualified Alberta lawyer or accountant for advice specific to your situation.