- HELOCs and bridge loans are both options that can help you fund a down payment.
- A bridge loan is a short-term, lump-sum financing with higher interest rates, designed to help you buy quickly before your current home sells.
- A HELOC is a<strong> </strong>long-term, revolving line of credit with lower variable rates, offering flexibility for multiple uses beyond just a down payment.
Buying a new home while still owning another property can feel overwhelming, but homeowners can successfully navigate this challenge with the right knowledge. The excitement of moving forward is real, even if the timing does not always work out perfectly.
Maybe you discover your dream home before your current one sells, or perhaps you need extra funds to make a competitive offer while most of your money is still tied up in your existing property.
The good news is that in these situations, your home equity can work for you and become a valuable financial tool to help you move confidently toward your next chapter. Two of the most common ways homeowners unlock that equity are through bridge loans and home equity lines of credit (HELOCs).
Unsure of which to choose? Compare your options with Refi.com.
What Is a Bridge Loan?
A bridge loan is a type of short-term financing commonly used to cover a down payment or closing costs on a new home when your current home has not yet sold. Here’s how it works:
- Term length: Often six to twelve months, although some lenders may extend them up to two or three years
- Structure: Typically disbursed as a lump sum
- Cost: Higher interest rates than traditional mortgages, often around 10% to 12%, along with additional fees
- Collateral: Sometimes involves both your existing and new home as security
Imagine you and your family find a new home in a competitive neighborhood. You want to make a strong offer without waiting for your current house to sell. A bridge loan gives you the ability to do that. Once your first home sells, the proceeds can be used to pay off the loan.
Pros and Cons of Bridge Loans
| Pros | Cons |
| Provides quick access to large funds | Higher interest rates compared to HELOCs or mortgages |
| Lets you purchase a new home before selling your current one | Short repayment term (often less than a year) |
| Makes your offer stronger in competitive markets | Balloon or lump-sum repayment required at the end |
| Helps avoid making a contingent offer | Closing costs and fees can be significant |
Not every buyer will benefit from a bridge loan. For instance, if your existing home is already under contract and expected to close soon, a bridge loan may be unnecessarily costly. In that case, you may be better off looking at other short-term options.
What Is a HELOC?
A home equity line of credit (HELOC) is a revolving credit line that uses the equity in your home as collateral. Think of it like a credit card with a much higher borrowing limit and lower interest rates.
- Term length: Typically, a 10-year draw period, followed by a 10 to 20-year repayment period
- Structure: Borrow only what you need, repay it, and borrow again during the draw period
- Rates: Usually variable, often starting around 7% to 9%
- Flexibility: Can be used for nearly any purpose, from covering college tuition to consolidating debt or paying for renovations
- Collateral: Usually secured by your current home
Check your buying power with this free HELOC calculator.
Imagine a homeowner who has time to wait before selling. They want to renovate their kitchen and bathrooms to boost resale value. A HELOC allows them to draw funds for those upgrades while keeping the line open for future needs.
As another example, a family may use a HELOC for tuition one year and then dip into it later for emergency expenses or even as part of a down payment strategy.
Pros and Cons of HELOCs
| Pros | Cons |
| Flexible borrowing, draw only what you need | Variable rates can increase over time |
| Typically lower interest rates than bridge loans | Requires strong credit and available equity |
| Typically, lower interest rates than bridge loans | Monthly payments can vary with usage |
| Works for multiple purposes: renovations, debt, tuition, down payments | Risk of overspending since funds are reusable |
The flexibility of a HELOC makes it especially useful for more than just transitioning between homes. Someone purchasing a rental property might use a HELOC to cover ongoing maintenance and upgrades.
Another homeowner may keep a HELOC as a financial safety net, knowing they have a line of credit available if large expenses arise over the next decade.
HELOC vs. Bridge Loan Differences
Although both products are tied to home equity, their features set them apart.
| Factor | Bridge Loan | HELOC |
| Equity Requirement | Requires typically 20%+ equity | Requires 15-20% equity |
| Collateral | May use both properties as collateral | Generally only tied to the current home |
| Term Length | Short (six months to one year, sometimes up to three years) | Long (10 to 30 years, including draw and repayment periods) |
| Payout Structure | Lump sum | Revolving line of credit |
| Interest Rate | Higher, often 10-12% | Lower, variable rates often 7-9% |
| Flexibility | Single-purpose, typically tied to down payments or closing costs | Multi-purpose: renovations, tuition, debt payoff, or down payment |
| Repayment | Often interest-only during the term, with a balloon payment at the end | Interest-only during draw, principal plus interest during repayment |
HELOC vs. Bridge Loan: Which Is Better?
The answer depends on what you need most: speed or flexibility and whether your priority is moving quickly or managing costs over the long term. For many borrowers, comparing HELOC vs. bridge loan options comes down to urgency.
Unsure which to choose? Compare your options with Refi.com.
When a Bridge Loan Is Better
A bridge loan may be the right choice if you need the full down payment right away to secure a new property. It can also be a smart option in a highly competitive market where making a strong, non-contingent offer is important.
Borrowers who feel confident their current home will sell quickly often find bridge loans useful because repayment is tied to the sale proceeds. This type of financing is best suited for those comfortable with higher costs and the urgency of a short repayment timeline.
Let’s think about a couple moving across the country for work. They have just a few weeks to close on a new home. A bridge loan offers quick access to the down payment so they can move fast, even before selling their old home.
When a HELOC Is Better
A HELOC may be the better option if you want the flexibility to borrow only what you need, when you need it. It is also a good fit if you are not under immediate pressure to sell your current home and prefer a line of credit to use for multiple expenses beyond a down payment.
Many homeowners are drawn to HELOCs because they typically come with lower interest rates, even if those rates are variable. This option works best for borrowers comfortable managing ongoing payments and a longer repayment period.
For instance, a homeowner preparing to remodel before listing their property might use a HELOC to borrow $50,000 for upgrades. After selling the home, they could repay part of the balance and still keep the line of credit open for future financial needs.
A Middle Ground
In some situations, a HELOC can function much like a bridge loan. If your lender allows it, you can draw from a HELOC to cover a down payment on a new property. The difference is in the repayment. With a HELOC, you continue making monthly payments until you pay off the balance, even after your old home sells. This can sometimes be less expensive than a formal bridge loan, but it also comes with its own risks.
For many homeowners, the choice between a bridge loan vs. HELOC for down payment is about weighing short-term certainty against long-term flexibility. A bridge loan offers speed and simplicity, while a HELOC offers adaptability and potentially lower costs.
HELOC vs. Bridge Loan FAQs
When weighing a bridge loan vs HELOC, it is natural to have questions about how they work, what they cost, and when each option makes sense. Below are answers to some of the most common questions borrowers ask when comparing these two methods of accessing home equity.
What is the main difference between a bridge loan and a HELOC?
The biggest difference lies in structure and timing. A bridge loan provides short-term, lump-sum financing to help you buy a new home before your current one sells. A HELOC provides ongoing, revolving access to equity over many years.
Can a HELOC be used like a bridge loan for a down payment?
Yes, in some cases, homeowners may use a HELOC advance for a down payment. However, unlike a bridge loan, a HELOC does not get paid off automatically when the old home sells. You will continue making payments until the balance is gone.
Which has lower interest rates: a bridge loan or a HELOC?
HELOCs generally have lower interest rates, often between 7% and 9%, compared to bridge loans that are typically around 10% to 12%. However, HELOC rates are variable and can rise with market conditions. Bridge loan rates are usually fixed but higher.
How long is the repayment term for each lo?
A bridge loan typically lasts six to twelve months, though, in some cases, it can extend up to three years. Repayment usually happens once the old home sells, making it a short-term solution designed for quick transitions.
In contrast, a HELOC usually comes with a 10-year draw period, during which you can borrow as needed, followed by a repayment period of 10 to 20 years. This structure makes a HELOC a much longer-term option compared to a bridge loan.
What Next?
Choosing between a bridge loan and a HELOC is not a one-size-fits-all decision. The right choice depends on your timeline, financial priorities, and comfort level with repayment. If you need fast access to funds and are prepared to pay more for speed, a bridge loan may fit better.
If you value flexibility, lower rates, and the ability to use your equity for multiple purposes, a HELOC may make more sense. For some borrowers, using a HELOC as a temporary bridge can also provide a balance between the two approaches.
Before making a decision, it is essential to step back and evaluate your situation carefully. Review your timeline and available equity. Ask yourself how soon you need the funds and how much equity you can realistically draw on.
Compare costs across lenders, paying close attention to interest rates, repayment terms, and fees. It may also be worthwhile to talk with a mortgage or financial advisor who can help you weigh different scenarios and determine which option best supports your goals.
Get started with Refi.com today to tap into your home’s equity.
