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California Bridge Loan or HELOC: Which One’s Right for Your Situation?

In this article: the key differences between bridge loans and HELOCs, and how to choose the best financing strategy for your particular situation.

When it comes to short-term financing options, bridge loans and home equity lines of credit (HELOCs) are two popular choices. Both of these options can be useful for accessing funds quickly, but they work differently and have distinct pros and cons.

In this article, we’ll take a closer look at bridge loans and HELOCs, compare the two options, and help you decide which one is the best fit for your financing needs.

California Bridge Loans vs. HELOCs

Bridge loans are typically used to bridge the gap between buying a new property and selling an existing one — hence the name. HELOCs, on the other hand, are revolving lines of credit that allow California homeowners to borrow against the equity in their homes.

While both options can provide access to equity-based funds, they have different terms, interest rates, and eligibility requirements.

The table below explains some of the key features and differences between these two financing options. We will talk more about these differences throughout the rest of this article.

Feature Bridge Loan HELOC
Purpose Used to bridge the gap between the time you buy a new home and the time you sell your old one, or to finance other expenses Used to borrow money against the equity in your home
Security Secured by the equity in your home Secured by the equity in your home
Interest rate Higher than a traditional mortgage Lower than a bridge loan
Closing costs May have closing costs May not have closing costs
Repayment term Shorter, typically 12 to 24 months Longer, typically 10 to 20 years

With that side-by-side comparison out of the way, let’s examine these home equity financing options one at a time. As you’ll see, these are very different products suited for different types of borrowers.

Bridge Loan: Key Features and Benefits

Bridge loans allow California homeowners to bridge the gap between the purchase of a new property and the sale of an existing one. This short-term financing strategy is typically used by home buyers who have found their dream home but haven’t yet sold their current one.

Bridge loans provide quick access to funds, allowing buyers to purchase the new property without waiting for their existing property to sell. In doing so, they allow you to move only once instead of twice, when buying another home.

The maximum loan amount is typically based on a percentage of the borrower’s current home equity, and is secured by the borrower’s current property.

Unlike a traditional mortgage, which might have a repayment term of 15 to 30 years, California bridge loans typically have a term of six months to a year. They also come with higher interest rates when compared to a regular mortgage loan.

A bridge loan can be especially beneficial in a competitive real estate market, where multiple buyers may be bidding on the same property. It can allow you to make a competitive offer without having to sell your current home, while also providing funds for the down payment.

Bridge loans can also be useful for homeowners who need to move quickly for a job or other personal reasons, due to the features explained above.

HELOC: Key Features and Benefits

A home equity line of credit, or HELOC, is a revolving line of credit that allows California homeowners to borrow against their equity. The amount of credit available is based on the amount of equity the homeowner has in their property. The funds can be used for a variety of purposes, including home renovations, debt consolidation, or other expenses.

In California, HELOCs are typically for a term of 10 years, with a draw period of five to 10 years followed by a repayment period of up to 20 years. But this can vary from lender to lender, so you need to make sure you understand the specific terms.

The interest rate on a HELOC is typically variable, meaning it can fluctuate over time based on changes in the market.

HELOCs can provide California homeowners with flexible access to funds for a variety of purposes. They can be a good option for home renovations or other large expenses, and the interest may be tax deductible.

Additionally, because the credit line is revolving, homeowners can borrow and repay funds as needed, making it a more flexible option than a traditional home mortgage loan.

The main drawback of HELOCs is that they are secured by the borrower’s home. This means that if the borrower is unable to make the payments, they could be at risk of foreclosure. Also, because the interest rate on a HELOC is typically variable, the borrower may be subject to rate hikes over time.

Choosing the Best Option for Your Situation

When deciding between a bridge loan and a HELOC, consider your specific financing needs and the risks and benefits of each option. Factors to consider may include your timeline for buying and selling properties, the amount of equity you have in your current property, and the interest rates and fees associated with each option.

As mentioned above, California bridge loans can provide quick access to funds for buyers who need to purchase a new property before selling their current home. They typically come with higher interest rates than HELOCs. Bridge loans are short-term loans, which means the borrower may end up paying less interest over the life of the loan when compared to a conventional mortgage.

HELOCs, on the other hand, can give California homeowners flexible access to funds for a variety of purposes. The interest may be tax deductible. They typically come with lower interest rates than bridge loans, but the borrower may end up paying more interest over the longer repayment window.

California HELOCs typically offer more flexibility than a bridge loan. It’s a revolving line of credit, which means the homeowner can borrow and repay funds as needed over time.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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