Bridge Mortgages Versus Home Equity Line of Credit: What's the Best Choice?
If you are thinking about relocating from one home to another, there are so many things to consider. In addition to all the decisions you'll need to make, you'll also need money. There are times when you might need to purchase a new home before you've sold your old one.
In this case, you will need to find a way to transition smoothly. There are two options you can consider -- the bridge mortgage or the home equity line of credit. Both of these choices offer their own advantages and disadvantages.
A home equity line of credit works much like any other line of credit but uses your home as collateral. The amount of credit you will be able to get will depend on how much equity you have in your home. Equity is defined as your original mortgage minus your current mortgage.
The difference represents your accumulated equity. There are quite a few benefits to the home equity line of credit. One benefit is the flexible term. You can go short or long term with one of these loans. Also, because your home equity is the collateral, you can often find a home equity loan at attractive interest rates.
If you can, go for a home equity line of credit instead of a bridge loan.
If you don't have much equity, you might have to choose a bridge loan over a home equity line of credit. Like home equity lines of credit, bridge loans use collateral but instead of using the equity in the old home, the new home is used as collateral for the loan.
Bridge loans are short term and high interest, which makes them less than ideal for borrowers. Investors can make a good profit on a bridge loan, if they are willing to take the risk. For some, a bridge loan is the only option.
Therefore, when it comes to comparing home equity lines of credit with bridge mortgages, the home equity lines of credit are going to win every time. A bridge loan should only be considered when all other options have been ruled out.