| For some home buyers, purchasing
that new home involves selling an old one. That's
why some borrowers look for a "bridge loan"
to span the gap between the two transactions.
Terms of a bridge loan can vary. Some are structured
so that they completely pay off the old home's
first mortgage, while others pile the new debt
on top of the old.
A typical bridge loan might be structured as
follows:
• The loan is used to pay off the existing
mortgage, and the remaining money -- minus closing
costs and six months prepaid interest -- is used
as a down payment on the new home.
• If, after six months, the old house still
is not sold, the borrower will begin making interest-only
payments on the loan
• The loan has a term of one-year.
• When you sell your current home, the bridge
loan is paid off. If it is sold within the first
six months, any unearned interest payments will
be credited to you.
• The mortgage on the new home must be financed
by the same lender who extended the bridge loan.
Bridge loans are costly because of high fees.
You might consider other financing such as borrowing
against a 401(k) plan or taking out loans secured
by stocks or other assets.
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