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A bridge mortgage or bridge loan is a temporary loan.
With this loan, you bridge the period between buying your new home and selling your old one. You pay only interest. Fortunately, the interest on the bridge loan is deductible.
Under the tax “moving house” rule, you may temporarily deduct the interest from both your old home and your new home. The term begins in the year you put the old home up for sale, or purchase your new home.
What happens when you buy first?
Do you have a specific property in mind that you want to buy? It may be a reason to buy first so the house doesn’t pass you by.
With any luck, you can coordinate the transfer of both homes. That way you won’t be stuck with double housing costs. And, of course, you can take into account the expected surplus value of your current home.
What if your home yields less?
But there are also risks involved. One is that your current home may yield less than you expected. Do you need the excess value to buy your new home? Then you need to take out a bridge loan.
The lender often assumes 90% of the appraised value of your current home. Does the house not yield enough to pay off the bridging loan? Then you must increase your new mortgage or pay off the bridging loan with your own money.
Possible double living expenses
Another risk is that it will take longer than you expected to sell your old house first. Then you are temporarily stuck with double living expenses.
The mortgage costs of the old home and the new home, and often the mortgage interest on the bridge loan. Look carefully at how long you can pay these double monthly expenses.
If you meet certain conditions, then you can take advantage of double mortgage interest deductions. This gives you a tax advantage. The maximum period for this is three years. A good mortgage broker can help you well with these questions.
What happens when you sell first?
Selling your current home first has one big advantage: you know exactly what your home will fetch. And so it is completely clear what your financial options are when buying a new house.
Also nice: your excess value is often available immediately, so you don’t have to take out a bridge loan.
One disadvantage is that you may find yourself temporarily without a home if you are unable to find another one right away. You then have to arrange housing for a certain period of time. You will also have to deal with a double move.
And do you have a specific home in mind that you want to buy? Then chances are it will be gone if you sell your current home first. This is because the market is still very tense and houses often go away quickly and above the asking price. Finally, you may be able to agree with the seller that you will buy the house with the proviso that your own house is sold within a certain period of time. The question is, of course, whether he will agree to that, but asking is free.
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