What is bridge financing?
Bridge financing, also called a bridge loan, is temporary funding that "bridges" the gap between two real estate transactions. When you are buying a new home before your current home has sold, you need funds to complete the purchase. Your existing home's equity is tied up in that property until it closes. A bridge loan provides the cash needed to make up the difference, secured against your current home's expected sale proceeds.
In Ontario, bridge loans are typically provided by the same lender that holds your current mortgage, though some financial institutions offer stand-alone bridge financing products. The loan is repaid in full when your current home closes — usually within 30-60 days. Bridge financing is not a long-term solution; it is a very short-term tool designed for a specific timing gap.
When is bridge financing needed?
The most common scenario requiring bridge financing is when your new home closes before your current home. In Ontario's fast-moving market, this happens frequently — you find the perfect home but your current property has not sold yet, or the closing dates simply do not align. Other situations include buying a new home that requires a larger down payment than you have in liquid cash (with the equity from your current home serving as the source), renovating your current home before listing it for sale and needing access to equity for the work, or purchasing a vacation or investment property before refinancing your primary residence to access the funds.
If you have sufficient liquid savings to cover the down payment and closing costs without accessing your current home's equity, bridge financing is unnecessary. But for most Ontario homeowners, the majority of their wealth is in their home equity, making bridge financing a practical necessity when timing gaps occur.
How bridge financing works in Ontario
The bridge loan amount is based on the expected equity from your current home after the sale closes. A lender will typically advance up to 90-100% of the expected net proceeds from your sale, minus a holdback for real estate commissions and closing costs. Here is how the calculation works: your current home is worth $800,000 and you owe $300,000 on the mortgage. Expected net proceeds after real estate commissions (5% = $40,000) and legal fees ($2,000) = $800,000 - $300,000 - $42,000 = $458,000. The lender may advance 90% of that amount, or approximately $412,000, as a bridge loan. That covers your new home's down payment and closing costs while you wait for your sale to close.
The bridge loan is registered as a short-term charge against your current property. It is separate from your existing mortgage and is paid out in full when your sale closes. Most Ontario lenders require a signed Agreement of Purchase and Sale (APS) for both properties — the one you are buying and the one you are selling — before approving a bridge loan. The sale of your current home must be firm (conditions removed) or very close to firm for most lenders to proceed.
Bridge financing costs and rates
Bridge loans are more expensive than conventional mortgages because of their short-term nature and the administrative work involved. Typical costs in Ontario include: an interest rate of prime plus 2-5% (typically 7-10% in 2026), charged as a flat fee rather than amortized — often calculated as a monthly rate of 0.5-1% of the loan amount, a setup or administrative fee of $250-750, and lender's legal fees of $500-1,000 to register and discharge the bridge loan charge. Total costs for a typical 30-day bridge loan on $200,000: interest at 8% annually = approximately $1,333 per month, plus fees of $750-1,750. Total estimated cost: $2,000-3,000 for a 30-day bridge.
Because costs are significant, bridge financing should only be used for as short a period as possible. Most Ontario lenders offer bridge financing for up to 90 days, and the interest clock starts ticking from the day funds are advanced, not from the day you close your purchase.
Bridge financing limits in Ontario
Ontario lenders impose specific limits on bridge financing to manage risk. The maximum bridge loan amount is generally 90-100% of the anticipated net sale proceeds of your current home. The maximum term is typically 30-90 days, though some lenders extend to 120 days with prior approval. The bridge loan plus your existing first mortgage cannot exceed 80-85% of your current home's appraised value (LTV limit). And the loan is conditional on a firm sale agreement for your current property — most lenders will not fund a bridge loan without a signed, unconditional APS.
Some lenders offer "no-sale" bridge financing if you have sufficient equity and do not need to sell your current home, but this is less common and typically requires higher equity (35-40%+) and a clear repayment plan. This is sometimes used for renovation projects before listing.
How to qualify for bridge financing
Qualifying for a bridge loan in Ontario requires: a firm Agreement of Purchase and Sale on your current home (conditions removed or very close to removal), sufficient equity in your current home to cover both your existing mortgage and the bridge loan (minimum 20% equity remaining after both are registered), a firm purchase agreement on your new home, confirmation that your existing mortgage lender supports the bridge arrangement (some lenders require their consent), and sufficient income to carry both mortgage payments plus the bridge loan interest during the bridge period. Your credit score should be in good standing — typically 600+ for most lenders, though requirements vary. Your existing mortgage lender is often the best first option since they already have your property information, existing mortgage details, and streamlined processes for existing customers.
Bridge financing steps
The bridge financing process in Ontario typically follows these steps: Step 1 — confirm that your sale and purchase closing dates create a gap that needs bridging (your real estate agent and lawyer can help identify this early). Step 2 — contact your existing mortgage lender or a broker to discuss bridge financing options before you firm up your purchase agreement. Step 3 — submit bridge loan applications with supporting documents (signed APS for both properties, current mortgage statement, real estate commission estimates, proof of home insurance for both properties). Step 4 — the lender approves the bridge loan and issues a commitment letter with terms, rate, and conditions. Step 5 — at the purchase closing, the bridge funds are advanced alongside your new mortgage funds. Step 6 — when your current home closes, the bridge loan plus accrued interest and fees is repaid from the sale proceeds through your lawyer. The entire process from application to funding typically takes 5-10 business days, so starting early is essential.
Bridge financing vs other alternatives
Bridge financing is not the only option for covering a timing gap between transactions. Depending on your situation, alternatives may include negotiating aligned closing dates with both buyers and sellers (the simplest solution — ask your real estate agent to coordinate dates before offers are finalized), using a HELOC on your current home as a revolving credit line (if you already have one set up — a HELOC can serve the same purpose at lower rates but requires advance planning since HELOCs take 2-4 weeks to establish), borrowing from family on a short-term basis with a formal repayment agreement, asking your new lender for a portable mortgage that allows the port to happen before your sale closes (some lenders allow "early advance" porting), or delaying your new home purchase until your current home sells (requires negotiating an extended closing date with the seller, which may not be accepted in a competitive market). Each option has different costs and timelines — your broker can help you evaluate which makes the most sense for your specific situation.
Bridge financing risks
Bridge financing is safe when you have a firm, unconditional sale agreement and the closing dates are certain. The risks increase significantly if your sale is conditional (subject to financing, inspection, or the buyer's own sale) because a condition failure could delay or cancel the sale, leaving you with two properties and a bridge loan to repay. Other risks include extended timelines if your buyer's financing falls through, additional costs if the bridge period extends beyond initial expectations (interest accrues daily), and property value declines that reduce net proceeds below the bridge loan amount. To mitigate these risks, ensure your sale is as firm as possible, keep the bridge period as short as possible, and have a contingency plan (such as a HELOC or family support) if the bridge period needs to extend.
Bridge financing on investment properties
Bridge financing is also available for investment property transactions in Ontario, though the requirements are typically stricter. Investors may need 25-35% equity in the current property, and rates are often 1-2% higher than for principal residence bridge loans. Lenders may also require a signed lease agreement for the new investment property demonstrating that rental income will cover the carrying costs. Investors planning to use bridge financing should discuss this with their broker before making offers, as timing and equity requirements can affect purchase strategies.
