How Bridge Loan Works
Bridge loan scenario: You own a ₹1 crore flat (loan cleared) and want to buy a ₹1.6 crore new flat. You need ₹80 lakh own funds to put with a ₹80 lakh home loan. Your ₹1 crore will come once your flat sells — but you need to commit to the new flat now. Bridge loan: bank lends ₹70–75 lakh against your existing flat at 12% for 12 months while you sell it. Once sold, repay bridge loan + take home loan for remainder.
| Factor | Bridge Loan | Regular Home Loan |
|---|---|---|
| Purpose | Temporary gap financing — not for long-term | Long-term property purchase financing |
| Tenure | 6–24 months | 10–30 years |
| Interest rate | 10–14% — higher | 8.5–10.5% — lower |
| EMI structure | Often interest-only during bridge period | Principal + interest EMI |
| Repayment | Lump sum from old property sale proceeds | Monthly EMI over tenure |
| Collateral | Existing property | New property being purchased |
Better Alternatives to Bridge Loan
Alternatives Worth Considering Before Bridge Loan
- Top-up loan: If existing home loan is outstanding — top-up at home loan rates (8.5–10.5%) is far cheaper than bridge loan at 12–14%
- Personal loan: For smaller gaps — personal loan at 12–18% but no collateral required; simpler process
- Negotiate timing: Ask new builder for extended payment timeline — many builders accommodate serious buyers
- Rent out old property: While selling, rent old flat — rental income partially offsets holding costs
- Sell first, rent temporarily: Sell existing property, rent temporarily while completing new purchase — eliminates bridge loan need entirely
Related Terms
Frequently Asked Questions
A bridge loan is a short-term loan (6–24 months) that funds the purchase of a new property before sale proceeds from an existing property are received. It "bridges" the timing gap between buying and selling. Interest rates are higher (10–14%) than home loans. The loan is secured against the existing property and repaid in a lump sum from the sale proceeds.
Bridge loan is useful when: you need to commit to a new property purchase before your existing property sale closes, you cannot get an extension on the new purchase timeline, and no cheaper alternative (top-up loan, negotiated payment plan) is available. Avoid if the old property market is slow — being stuck paying 12–14% bridge loan interest while struggling to sell is a costly situation.
Bridge loans typically carry 10–14% interest — significantly higher than regular home loans (8.5–10.5%). This reflects the short-term, higher-risk nature of bridge financing. Before taking a bridge loan, explore cheaper alternatives: top-up on existing home loan (home loan rates), or personal loan for small amounts. The interest cost over 12 months on ₹70 lakh at 12% is ₹8.4 lakh.
Typically 60–70% of the existing property value minus any outstanding home loan. Example: existing property worth ₹1 crore, no outstanding loan — maximum bridge loan approximately ₹65–70 lakh. LTV for bridge loans is more conservative than regular home loans because the bank is taking a higher risk on a short-term instrument with less certainty of repayment.
Main risks: (1) Old property takes longer to sell than expected — bridge loan interest compounds at 12–14%, (2) Old property sells for less than expected — you may not have enough to repay bridge loan fully, (3) Double financial burden — bridge loan interest + new home loan EMI simultaneously, (4) Market downturn during bridge period — old property value falls. Always have a fallback plan before taking a bridge loan.