What is a bridge loan?

A bridge loan is correctly identified as a short-term loan that provides temporary financing between two financial transactions, typically used in real estate. It allows a borrower to secure immediate funds to purchase a new property while waiting for the existing property to sell. This type of loan is particularly useful for individuals who need quick access to cash to capitalize on an opportunity without being hindered by the selling process of their current property.

This financing option usually carries higher interest rates compared to traditional long-term mortgages due to its short-term nature and the urgency often associated with the situations in which it's utilized. By bridging the gap in financing, the borrower can proceed with their plans without facing delays that may arise from waiting for the sale of their existing home, thus preserving their opportunity to acquire the desired property.