A bridge loan is short-term financing intended to cover a temporary funding gap until a defined event—such as a property sale, permanent financing, or completed project—repays it. The central risk is not only the rate; it is whether the exit happens on time and for enough money.
Common uses
- Buying a new home before selling the current one
- Financing construction or renovation before long-term lending
- Covering an acquisition or business transition
- Meeting a short working-capital need tied to a specific receipt
Consumer and commercial products differ. CFPB’s Regulation Z commentary describes certain temporary home bridge loans with terms of 12 months or less, but exemptions from a specific rule are not evidence that a loan is affordable or low risk.
Calculate total cost
Add interest, origination, appraisal, legal, title, recording, inspection, broker, extension, exit, and prepayment charges. Include overlapping mortgage, tax, insurance, maintenance, and utility costs.
| Cost question | Why it matters |
|---|---|
| How is interest calculated? | Daily, monthly, simple, compound, prepaid, or capitalized changes cash |
| When is principal due? | A balloon creates a concentrated exit risk |
| Can the term extend? | Extension may require approval and large fees |
| What collateral and guarantee apply? | Default can affect more than the financed asset |
Build three exit scenarios
- Base: expected sale or refinancing date and proceeds.
- Delay: lower price, slower closing, added carrying costs, and extension fee.
- Failure: no timely exit; identify available cash, alternative financing, asset sale, and consequences.
Do not count gross sale price as available cash. Subtract liens, transaction costs, taxes where applicable, repairs, and required reserves.
Questions for the lender
- Rate, index, floor, default rate, and all fees?
- Payment schedule and maturity balloon?
- Collateral, lien priority, recourse, and guarantees?
- Required sale listing, appraisal, or permanent-loan conditions?
- Covenants, reporting, insurance, and prohibited actions?
- Extension, prepayment, default, and cure terms?
Alternatives
Depending on the purpose, alternatives may include a sale contingency, delayed purchase, home-equity product, longer-term loan, seller financing, line of credit, equity contribution, staged project, or asset sale. Compare risk-adjusted total cost, not speed alone.
Use the mortgage application guide for home financing and the business loan guide for commercial needs.
Frequently asked questions
Are bridge loans interest-only?
Some are, but structure varies. Even interest-only payments leave principal due at maturity.
What is the biggest bridge-loan risk?
The expected exit may be delayed, produce less cash, or fail while interest and carrying cost continue.
Are bridge loans covered by every mortgage protection?
No. Coverage and exemptions depend on product, term, purpose, lien, and law. Review current disclosures and legal advice.
Sources reviewed
Last reviewed: August 15, 2026. This is general U.S. education, not a loan offer or legal, tax, or financial advice.