A real estate bridge loan allows borrowers to secure funds against their current properties to purchase other properties. Lenders who offer bridge loans generally extend financing for six- or 12-month terms.
Many borrowers who secure bridge loans do so to buy new properties while their current properties remain listed for sale. However, several real estate experts criticize bridge loans because of the inherent risks involved. Many bridge loans carry higher interest rates than the current rates on the existing loans, which increases borrowerﾒs debt-to-income ratios. Borrowers often choose to use bridge loans as second liens on top of existing liens. In this instance, if the existing property does not sell, the borrowers have two outstanding loans.