Bridge Loans vs. HELOCs: Finding the Right Home Financing Solution

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What is a Bridge Loan?

Bridge loans are used by residential home owners to “bridge the gap” between the sale of their existing home and the purchase of a new home.

Bridge lenders provide these short-term loans to borrowers in need of immediate cash to facilitate a property purchase or to make a down payment.

While bridge loans can be funded in a matter of days, these temporary loans are associated with higher fees and interest rates than traditional bank loans.

Main Features

Funding in 5 to 7 days
Interest rates 8% to 15%
Origination points 1% to 4%
6 to 12-month terms
Collateral is your primary residence
Used in both real estate and business acquisitions

What is a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit line, allowing you to borrow money against the equity in your home.

Instead of getting a lump sum of cash, HELOCs function more like a credit card, permitting you to borrow and repay over and over again within the designated draw period.

HELOCs enable borrowers to use the funds for a variety of purposes, not only real estate.

Main Features

Revolving credit line
Structured draw and repayment timelines
Variable interest rates are correlated with the prime rate
Long-duration loans of 5 to 10 years draw periods
Few restrictions on what cash can be used for

Differences Between Bridge Loans and HELOCs

Bridge Loans

Purpose
Bridge the gap between selling the current home and buying a new home.

Duration
6 to 12 months

Interest Rates
8% to 15% fixed rate

Exit Strategy
Lump sum or balloon payment

Common Uses
Purchasing a new property before selling your existing one

Tax Implications
Interest not tax-deductible*

HELOCs

Purpose
Tap into your home’s equity with a reusable credit line you can draw from over time.

Term Duration
5 to 20 years

Interest Rates
5% to 9% variable rate

Exit Strategy
Flexible, interest-only during draw

Common Uses
Using funds for home renovations or living expenses

Tax Implications
Interest sometimes tax-deductible*

*If the money is put towards home improvements

When to Use a Bridge Loan

You discovered your dream home, but have yet to sell your existing home
You want to make an all-cash offer that will stand out amongst competitors and avoid the need for contingencies
The exit strategy is to repay the loan in full once your current home sells

When to Use a HELOC

Prudent if you have lots of equity in your home but are low on liquidity
Planning to remodel your home
Want a revolving credit source in the event of unforeseen circumstances
Have the ability to repay the loan within the agreed-upon timeline

The Bottom Line

Depending on the situation, both bridge loans and HELOCs can serve beneficial purposes.

If you are transitioning between homes, bridge loans can give you the financial power to act fast and close on an attractive deal.

However, if you are in need of more time, flexibility, and a better interest rate, a HELOC is the way to go.

Determine your needs, duration of capital required, and repayment capabilities, then reach out to a lender to obtain financing.

While banks can provide HELOCs for access to revolving credit, bridge loans are the best financial option when transitioning from an existing property to a new home.

Handpicked Resources

Bridge Loans
Hard Money Bridge Loans Bridge Loans
Bridge Loans for Real Estate Investors Bridge Loans
Multifamily Bridge Loans Bridge Loans
Residential Bridge Loans in California Areas Served
Bridge Loans in Los Angeles Bridge Loans
How Long Does It Take?

About the Author

Russell Barneson
Hard Money Lending Expert

Russell is a seasoned real estate investor, writer, and hard money lending expert, as well as the co-founder of Crescent Lenders. He holds a degree from the University of Southern California’s Marshall School of Business. Outside of work, Russell enjoys surfing and spending time outdoors with his dog, Amy.

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