A bridge loan is short-term financing, usually six to twelve months, that lets you borrow against the equity in your current home to buy a new one before the old one sells. Rates in 2026 generally run 8% to 13%, closing costs land between 2% and 5% of the loan amount, and the full principal comes due in a single balloon payment at maturity. Closings can happen in as little as two weeks, which is why buyers accept the premium over conventional mortgage rates when they need to move quickly.
How the Loan Is Structured
The loan is secured by your current home through a mortgage or deed of trust. If you still owe money on that home, the bridge lender sits in second lien position behind your existing mortgage. If the home is paid off, the bridge lender takes first position.
Bridge loans are not amortizing. Your monthly payments cover interest only, so nothing chips away at the principal. The full amount you borrowed comes due at the end of the term in one lump sum. That keeps monthly cash flow lower while you wait for the old home to sell or for permanent financing to close, but it means you need a clear plan for retiring that balance before the clock runs out.
Lenders cap the loan at a percentage of the property’s appraised value, commonly around 80% loan-to-value. If you owe $200,000 on a home appraised at $500,000, a lender at 80% LTV would lend up to $400,000 total against the property, meaning your maximum bridge loan is $200,000 after subtracting the existing mortgage. That combined loan-to-value calculation is the most important number in underwriting, because it determines how much cash you can actually access.
What a Bridge Loan Costs
Rates in 2026 run roughly 8% to 13% for residential properties, with the exact number driven by your loan-to-value, credit profile, and the lender’s cost of capital. Leverage matters: a loan at 65% LTV might price at 8.5% to 10.5%, while pushing to 75% LTV can land you at 11% to 13%.
On top of the rate, expect origination fees called “points.” Each point equals 1% of the loan amount, and most bridge lenders charge one to three. On a $300,000 loan, two points means $6,000 taken off the top before you receive any funds. These fees are almost always deducted from the loan proceeds at closing, so the net amount wired to you is less than the face value of the loan.
Other closing costs add up. Appraisals run $500 to $1,200. Processing and underwriting fees add another $1,000 to $2,000. Title insurance, escrow, document preparation, and wire fees round out the bill. Total closing costs typically land between 2% and 5% of the loan amount. On that same $300,000 loan, you might pay $6,000 to $15,000 in combined fees and points before a single interest payment comes due.
Most bridge loans do not carry prepayment penalties, which makes sense given the structure; the whole point is to pay off early when the old home sells. Read the promissory note anyway. Some lenders include a minimum interest guarantee, meaning you owe a set number of months of interest regardless of how quickly you repay. A three-month minimum on a $300,000 loan at 10% costs $7,500 even if you sell your home in six weeks.
How Fast You Can Close
Speed is the reason bridge loans exist. A traditional mortgage closing takes 45 to 60 days. A bridge loan can move from first contact to funded in 10 to 21 days, sometimes faster. Underwriting is simpler because the lender focuses primarily on collateral value and your equity position rather than running the full income-verification gauntlet of a conventional mortgage.
That speed advantage matters most in competitive markets. If a seller has two offers and one is contingent on the buyer selling their current home while the other can close in two weeks, the quick-close offer wins almost every time. Bridge financing lets you drop the sale contingency and compete alongside cash buyers.
Terms are intentionally short. Most agreements run six to twelve months, though some lenders offer extensions for an additional fee. Extensions commonly cost another point or two plus continued interest. If you need it, you pay for it, but it beats defaulting at maturity.
What the Lender Will Ask For
Bridge lenders move fast, but they still need a complete picture of your finances and the properties involved. Gathering everything upfront is the single biggest thing you can do to keep the timeline on track. Plan to provide:
- Your most recent mortgage statement showing the payoff balance, plus a preliminary valuation or broker price opinion on your current home.
- A signed purchase contract for the property you’re buying, so the lender knows the transaction amount and closing date.
- A written exit strategy explaining how you’ll pay off the bridge loan. This is almost always the sale of your current home, but it can also be a refinance into a conventional mortgage. Lenders treat this document seriously because it’s their roadmap to repayment.
- Two years of tax returns, recent bank statements, and a schedule of existing debts and assets.
- Details on the collateral property’s condition, which helps the appraiser and gives the lender confidence in marketability.
Once the package is in, the lender orders an appraisal, verifies your equity and exit plan, and issues a commitment letter with final terms. Closing happens at a title company or with a notary, and funds are wired to escrow shortly afterward. One wrinkle: if the loan is secured by your current primary residence, federal law gives you a three-day right to cancel after signing, which delays fund release. More on that below.
One additional rule kicks in when the bridge loan feeds into a Fannie Mae-backed mortgage on the new property. The bridge loan cannot be cross-collateralized against the new home, and the lender must verify you can carry payments on the new mortgage, the old mortgage, the bridge loan, and all your other debts at the same time.1Fannie Mae. Bridge/Swing Loans Plenty of applications stall on that second point. Even with substantial equity, the lender needs to see that your income supports three or four simultaneous payments without blowing past debt-to-income limits.
What Happens if the Old Home Doesn’t Sell in Time
This is the risk that keeps real estate attorneys busy. The bridge loan matures, the old house is still on the market, and the full principal is due. You have a few options, none of them free.
The best outcome is negotiating an extension. Most bridge lenders would rather collect another few months of interest than foreclose, so extensions are common. They come at a cost: additional points, a higher rate, or both. Some loan agreements include a built-in extension option with pre-set terms, so check your commitment letter before assuming you’ll need to negotiate from scratch.
If an extension isn’t available or affordable, you may need to drop your asking price to force a sale. Every month you carry the bridge loan costs you interest, and that number compounds against whatever you’d lose by reducing the price. The math sometimes favors a fast sale at a discount over holding out for top dollar while the loan burns cash.
The worst case is default. Because the loan is secured by your home, the lender can start foreclosure if you can’t repay by the maturity date. Default interest rates written into bridge loan agreements are steep, and the lender’s legal costs get added to your balance. Before you sign, stress-test the scenario where your home takes twice as long to sell as you expect, and make sure you can survive that timeline.
Tax Treatment of the Interest
Interest paid on a bridge loan may qualify for the mortgage interest deduction, but only if the loan meets the IRS definition of “secured debt” on a “qualified home.” The loan must be secured by a mortgage or deed of trust on your main home or a second home, the instrument must let the lender satisfy the debt through the property in case of default, and it must be recorded under state law.2Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Most bridge loans closed through a title company with a properly recorded lien check all three boxes.
The deduction is limited to interest on “home acquisition debt,” which the IRS defines as a mortgage taken out to buy, build, or substantially improve a qualified home. If you use bridge proceeds for something other than purchasing or improving the new property, the interest on that portion is not deductible.2Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
For the 2025 tax year, deductible mortgage interest applies to the first $750,000 of combined home acquisition debt ($375,000 if married filing separately).2Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Under the Tax Cuts and Jobs Act’s sunset provisions, the 2026 tax year is scheduled to revert to the pre-2018 threshold of $1 million ($500,000 if married filing separately). Congress could change this, so confirm the current limit with a tax professional before relying on the deduction in your planning. Either way, the bridge loan balance counts toward whatever cap applies, combined with your other outstanding mortgage debt.
Federal Rules That Do and Don’t Apply
Bridge loans sit in an unusual regulatory space. Because they’re short-term, federal rules exempt them from several consumer protections that apply to standard mortgages. Knowing where those exemptions begin and end matters, because some protections still apply in ways borrowers don’t expect.
The Ability-to-Repay Exemption
Under Regulation Z, a bridge loan with a term of 12 months or less is exempt from the ability-to-repay and qualified mortgage rules that govern conventional home loans. In practice, the lender is not required by federal law to verify affordability using the same rigorous standards applied to a 30-year mortgage. The lender may still evaluate your ability to repay as part of its own risk management, but the regulatory floor is lower. If the loan is renewable, each renewal period must also be 12 months or less for the exemption to hold.3Consumer Financial Protection Bureau. 12 CFR 1026.43 – Minimum Standards for Transactions Secured by a Dwelling
The Three-Day Right of Rescission
Federal law gives you three business days to cancel most loans secured by your principal residence.4Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions Purchase-money mortgages for a new home are exempt, but here’s the catch: a bridge loan secured by your current home is not a purchase-money mortgage on the new property, even if the proceeds go toward buying it. The CFPB has stated that a bridge loan secured by equity in a consumer’s current principal dwelling is subject to the right of rescission.5Consumer Financial Protection Bureau. Comment for 1026.23 – Right of Rescission That three-day window is real, and funds will not be released until it expires. Factor it into your closing timeline.
Higher-Priced Mortgage Loan Exemptions
Bridge loans of 12 months or less are also excluded from the “higher-priced mortgage loan” category under Regulation Z.6eCFR. 12 CFR Part 226 – Truth in Lending, Regulation Z The lender is not required to set up an escrow account for property taxes and insurance, and the enhanced appraisal requirements for higher-priced loans don’t apply. Most bridge lenders still order an appraisal to protect their own interest, but they aren’t federally required to follow the stricter appraisal protocols that apply to conventional mortgages with above-market rates.
Cheaper or Slower Alternatives
Bridge loans solve a real problem, but they’re among the most expensive ways to tap home equity. Before committing, compare the total cost against a few alternatives.
A home equity line of credit draws on the same equity at considerably lower rates. Average HELOC rates in early 2026 sit around 7% to 8%, compared to 8% to 13% for bridge financing. Closing costs on a HELOC are often minimal or zero. The main drawback is timing: a HELOC can take four to six weeks to set up, so you need to have it in place before you start house-hunting. Opening one before you find the new property gives you flexible, lower-cost access to your equity without the time pressure of a bridge loan.
A sale contingency clause in your offer eliminates the need for bridge financing entirely. You make the purchase conditional on selling your current home within a specified period. Sellers in competitive markets often reject contingent offers, but in slower markets, or when you’re a strong buyer in other respects, it’s worth asking. The cost is zero. The risk is losing the property to a non-contingent offer.
Selling first and negotiating a rent-back is another route. You close the sale, lease the property back from the new owner for 30 to 60 days while you find and close on your next home, and avoid carrying two mortgages entirely. Not every buyer will agree, but when it works, it removes the financial juggling act. For borrowers with strong equity and enough planning time, one of these alternatives often makes the bridge loan unnecessary.