A swing loan is a short-term loan, usually lasting six to twelve months, that lets you tap the equity in your current home to buy a new one before the old one sells. It’s the same product many lenders call a bridge loan. Interest rates typically run 8% to 12%, payments during the term are usually interest-only, and the full balance comes due in a single balloon payment once your existing home closes.
How a Swing Loan Is Structured
The loan is secured by collateral, almost always your current home. The lender records a lien on that property and can foreclose if you don’t repay, even if you’re current on your regular mortgage. Monthly payments during the term cover interest only, which keeps your out-of-pocket cost down while you wait for a buyer. When the term ends, you pay the entire principal in one lump sum, funded by the proceeds of the sale.
Because the loan places a lien on your principal residence, federal rules give you a three-day right of rescission. You can cancel the transaction for any reason within three business days after closing, after receiving the required rescission notice, or after receiving all required cost disclosures, whichever happens last.1eCFR. 12 CFR 1026.23 – Right of Rescission Rescission doesn’t apply to a loan used to finance the initial purchase of a home, but a swing loan is secured by the home you already own rather than the one you’re buying, so the protection generally does apply. The lender must also disclose the annual percentage rate, total finance charges, and all other loan costs before you sign under the Truth in Lending Act.2Office of the Law Revision Counsel. 15 U.S. Code 1601 – Congressional Findings and Declaration of Purpose
What a Swing Loan Costs
The headline rate is only part of the picture. Expect several layers of cost.
- Origination fee of roughly 1.5% to 3% of the loan amount, charged upfront. On a $150,000 loan that’s $2,250 to $4,500.
- Monthly interest on the outstanding balance. A $150,000 loan at 10% runs about $1,250 per month in interest alone.
- Appraisal fee, typically $400 to $1,200 depending on the property.
- Recording and notary charges that generally add a few hundred dollars combined, varying by jurisdiction.
A worked example: a $100,000 swing loan held for four months at 10% with a 2% origination fee costs about $2,000 in origination plus roughly $3,333 in interest, more than $5,300 before appraisal and other closing fees. The premium reflects the short timeline, the lender’s added risk, and the speed of funding.
What You Need to Qualify
Lenders generally look for a credit score of at least 680 and a debt-to-income ratio no higher than about 43% to 50%. DTI matters more than usual here because you may be carrying your existing mortgage and the swing loan at the same time. Fannie Mae’s guidelines require the lender to document that you can handle payments on both properties simultaneously.3Fannie Mae. Bridge/Swing Loans
On the paperwork side, you’ll need current mortgage statements for your existing home, the signed purchase agreement for the home you’re buying, recent pay stubs and W-2s or two years of federal tax returns, and a completed loan application (most lenders use the Uniform Residential Loan Application). The appraisal that comes later confirms the loan-to-value ratio stays within limits, typically capped at 80% of your home’s appraised value minus what you still owe.
How Fast You Can Get the Money
Swing loans move much faster than conventional mortgages. A traditional mortgage can take 30 to 45 days to close; a swing loan can often fund within about 72 hours of approval. Once underwriting clears, you receive a commitment letter spelling out the interest rate and closing costs, sign the loan agreement and mortgage documents, and the lender wires the proceeds to an escrow or title company in time for your new property’s closing.
That speed is the main reason buyers use this product. It lets you submit a non-contingent offer, which carries much more weight in competitive markets than an offer that depends on first selling your current home.
When the Interest Is Tax-Deductible
Whether you can deduct swing loan interest depends on how you use the money. Under IRS rules, mortgage interest is deductible only if the proceeds are used to buy, build, or substantially improve a qualified home, meaning your primary residence or a second home. If you use the swing loan to purchase a new primary residence, the interest generally qualifies as home acquisition debt. The IRS treats a mortgage as used to buy a home if you purchase the home within 90 days before or after taking out the loan, with the deductible amount limited to the home’s cost.4Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction
For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of total home acquisition debt ($375,000 if married filing separately). That cap applies to the combined balance of all mortgages on your qualifying homes, so your swing loan plus your new mortgage have to stay within that limit to be fully deductible. If you use the proceeds for something other than buying or improving a home, the interest isn’t deductible as mortgage interest even though the loan is secured by your home. Tax situations vary; a tax professional can confirm what applies to you.
Risks to Weigh Before You Sign
Your Home Doesn’t Sell in Time
The biggest risk is a slow sale. If your existing home hasn’t sold by the time the swing loan matures, you face the full balloon payment with no proceeds to cover it. Some lenders offer a short extension, often 90 days, but typically require you to pay a portion of the accrued interest upfront for the extra time. If you still can’t repay, the lender can foreclose on the home securing the loan.
Carrying Multiple Payments at Once
While the swing loan is outstanding, you may owe your existing mortgage, the swing loan’s interest-only payment, and, once your purchase closes, the new mortgage too. Before committing, add up all three payments and confirm you can cover them from income alone for the full loan term, not just a month or two.
Higher Overall Borrowing Costs
Between the elevated interest rate, origination fees, appraisal, and closing costs, a swing loan is significantly more expensive per dollar borrowed than a conventional mortgage or home equity line of credit. The cost buys speed and convenience, and it adds up quickly if the loan runs the full term.
Alternatives Worth Comparing
Home Equity Line of Credit
If you have time to plan, a HELOC can do the same job for less. Average HELOC rates were around 7.3% in early 2026, compared to 8% to 12% for a swing loan, and closing costs are often minimal or zero. The constraint is timing: opening a HELOC typically takes several weeks, so you need to apply well before you start house hunting. You also need enough equity in your current home, as with a swing loan.
401(k) Plan Loan
If your employer’s retirement plan allows it, you can borrow the lesser of $50,000 or half your vested balance.5Internal Revenue Service. 401(k) Plan Fix-It Guide – Participant Loans When the loan is used to buy your principal residence, the normal five-year repayment deadline doesn’t apply, giving you a longer window.6Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts The rate is usually lower, and you pay the interest to yourself. The downside: your money misses out on investment growth, and if you leave your job before repaying, the outstanding balance may be treated as a taxable distribution.
Home Sale Contingency Offer
The simplest alternative is making your offer on the new home contingent on selling your current one. It costs nothing extra and eliminates the need for bridge financing. The trade-off is competitiveness. In a seller’s market with tight inventory, sellers often reject contingent offers in favor of buyers ready to close without conditions. In a balanced or buyer-friendly market, a contingency can save you thousands.