A bridge loan is a temporary loan that leverages a homeowner’s equity in their current home to provide the homeowner with a down payment (and sometimes closing costs) for their next property purchase while they wait for their current home to sell.
Bridge loans must be applied for and approved by the lender who will be placing a mortgage on the new property purchase. To be eligible for a bridge loan the current home must be sold firm at least 15 banking days before the closing date of the new property purchase and the new property must have a mortgage loan registered against it on its closing date. Bridge loans can vary in length and size and the mortgage lender’s terms and conditions will determine whether the lender will register the bridge loan as a mortgage or not.
Mortgage lenders typically charge an application fee and elevated interest rate for the for the bridge loan and the bridge loan and accrued interest is paid off on the closing date of the existing home from the proceeds of the sale.
- Maximum Bridge Loan: Each lender determines its maximum bridge loan amount according to its own terms and conditions. The bridge loan amount may not exceed the maximum useable equity in the sold property.
- Lender Bridges Closing Costs: Not all lenders bridge closing costs and lenders who do, may not bridge all of the closing costs.
- Bridge Loan Registration Fee: Not all lenders require bridge loans to be registered as a mortgage. The lender’s terms & conditions determine whether and the criteria for registering a bridge loan as a mortgage.
- Bridge Loan Application Fee: The application fee varies between lenders.
- Bridge Loan Discharge Fee: If the lender requires the Bridge Loan to be registered as a mortgage, a discharge fee usually applies. Discharge fees vary between lenders.
- Bridge Loan Interest Cost/Day: Bridge loan interest rates are usually higher than normal mortgage interest rates and vary between lenders.
The purpose of this article is to define the terminologies and assumptions used in the calculator so that youcan understand the context of the inputs and results.
The are many mortgage calculators on the web, but we have not found any that follow Canadian mortgage rules, so while those calculators provide basic numbers, their results are pretty useless since the user cannot rely on the results. We wanted to build a calculator that where possible, incorporates mortgage rules and someone who is not in the mortgage industry can use the calculator and can rely a lot more on the calculator’s results. This calculator is the result of us trying to do it better for you and we hope you like it.
Where possible and practical, this calculator follows Canadian federal mortgage rules. While some rules are federal, other rules are not clearly defined and are left to the discretion of each lender. In cases of the latter, this calculator assumes the minimum standards, which means that some lenders may have more conservative requirements, which may reduce your maximum purchase price or increase your minimum required down payment amount. E.g. for properties with purchase prices exceeding $1M.
Because the calculator obeys the mortgage rules, it will automatically adjust its results to conform to the mortgage rules. The results will also give you a hint which of your inputs limited the Maximum Purchase Price so that you can see the effect of various inputs.
- Property types & Occupation: Applicable to only owner occupied, single family residences without rental income.
- Stress Test: Incorporates the federal “stress test” in the mortgage qualification criteria. The stress test interest rate is kept current and automatically updated by Mortgage Allies.
- Contract Interest Rates: The contract (actual) interest rates which determine your actual and displayed mortgage payment are based on current, realistic interest rates which depend on your down payment amount, mortgage amortization, etc. Mortgage Allies keeps interest rates current and updated.
- Compounding: Interest is semi-annually compounded.
- Payment Types: Only principal and interest payment types.
- Maximum Amortization: 30 years
- Credit: Your credit is acceptable to qualify for a prime mortgage.
- Debt: Your monthly liabilities are less than 5% of your monthly income. Liability payments are calculated according to mortgage rules and are usually more than the minimum, interest-only payments. Different payment calculation rules apply to different liability types.
- Debt Service Ratios: The calculator uses the maximum allowed percentages for the Total Debt Service (TDS) Ratio of 44% and the Gross Debt Service (GDS) Ratio of 39%
- Heat Amounts: The following heat amounts are used in the calculations:
- Condo properties with a purchase price less than $1M = $90/m
- Freehold properties with a purchase price less than $1M = $125/m
- Any property with a purchase price more than $1M = $175/m
- Mortgage Insurance Rates: Regular mortgage insurance rates are used
- Annual Income: Gross (before income taxes are deducted), traditionally verified income, acceptable to prime lenders.
- Mortgage Types: Only prime, AAA mortgages are covered by this calculator.
- Improvements: This is based on the “Purchase + Improvements” programs criteria offered by mortgage lenders. Improvements must be approved and not all mortgage lenders offer the program. Qualification criteria and amounts vary between lenders.
- Rounding: Where practical, all numbers are rounded up to the nearest dollar,
- LTV: Loan to Value. The ratio of the loan amount to the property’s purchase price (value), expressed as a percentage.
- Maximum Purchase Price: $436,917| Limited by annual income
- Maximum Purchase Price: “$436,917” – This is the maximum purchase price according to your inputs.
- Notification/Hint: “Limited by annual income” – This is our hint to let you know which of your inputs may be limiting your purchase price.
- Improvements: E.g. $40,000 | 9.16%
- Improvements Amount: “$40,000” – The amount of improvements that will be added to your mortgage.
- Percentage Improvements: “9.16%” – The ratio of the improvements amount to the property’s purchase price, expressed as a percentage.
- Down Payment: E.g. $23,846 | 5%
- Down Payment Amount: “$23,846” – Your declared or minimum down payment amount, depending on your down payment input selection.
- Down Payment Percentage: “5%” – The ratio of the down payment amount to the property’s purchase price, expressed as a percentage.
- Mortgage Insurance: E.g. $18,123 | 4%
- Mortgage Insurance Amount: “$18,123” – The amount of mortgage default insurance added to the mortgage for insured mortgages.
- Mortgage Insurance Rate: “4%” – The mortgage default insurance rate as determined by mortgage default insurers published rate tables for various products and down payment amounts.
- Mortgage Balance | LTV: g. $471,194 | LTV 98.8%
- Mortgage Balance: “$471,19” – This is the final mortgage amount which includes, improvements, down payment and mortgage default insurers, where applicable.
- LTV: “98.8” – This result shows the “True” LTV since the loan (mortgage) includes the mortgage default insurance amount. Although mortgage lenders measure LTV without adding the mortgage insurance amount to the mortgage, the True LTV provides you with a much better indicator of how much equity (down payment) you truly have in the property. For this example. You may have provided a 5% down payment (Lender’s LTV is 100%-5% = 95%), but after mortgage default insurance is added to the mortgage, your True LTV is 98.8%. Thus, your “true” equity in the property is 100%-98.8% = 1.2%
- You use this mortgage calculator by your own choice and at your own and sole discretion.
- This is not a mortgage application, pre-approval, pre-qualification or mortgage approval in any way.
- Lender Terms & Conditions apply and will be determined by the mortgage lender upon the approval of a final mortgage application.
- Results are estimates and for information purposes only and the accuracy of the results are not guaranteed.
- Interest rates, mortgage rules, terms & conditions, lenders, etc. can change at any time without prior warning and or prior notification.
- The calculator does not cover all possible mortgage solutions, nor does it represent any specific lender and/or any specific mortgage product(s).
- This calculator is the property of Mortgage Allies and in its entirety is considered as proprietary to Mortgage Allies.