Which short-term financing tool fits your move?
Buying a new home before your existing one sells is one of the most stressful timing puzzles in real estate. Two products are built to bridge that gap: a home equity line of credit (HELOC) and a bridge loan. Both borrow against the value of your current home, but they work very differently in terms of cost, speed, and risk.
Understanding the tradeoffs helps you avoid overpaying for the wrong tool.
How each product works
HELOC — a revolving line of credit secured by your home equity. You draw what you need, repay, and draw again. During the draw period (often 10 years) you typically make interest-only payments on the balance you use. Rates are variable, tied to a benchmark like the prime rate.
Bridge loan — a short-term, lump-sum loan also secured by your current home, designed specifically to “bridge” the gap until that property sells. Terms are usually 6–12 months, and repayment in full is expected at closing of the old home. Rates are typically higher than a HELOC, often fixed for the short term.
Side-by-side comparison
| Feature | HELOC | Bridge loan |
|---|---|---|
| Loan structure | Revolving line of credit | Lump-sum term loan |
| Typical rate | Variable (often prime + margin) | Fixed, usually higher than HELOC |
| Typical fees | Appraisal, origination (lower overall) | Origination, closing costs (can be significant) |
| Time to fund | 4–8 weeks | 2–4 weeks (can be faster) |
| Repayment term | Draw period + repayment period (10–20 years) | 6–12 months; balloon payment at sale |
| Ideal for | Homeowners with strong equity and some runway | Buyers who need immediate funds and a fast close |
| Risk if home does not sell | Ongoing variable-rate payments | Loan matures; extension fees or refinance required |
When does a HELOC make more sense?
A HELOC tends to be the better choice when:
- You have at least 15–20% equity in your current home after accounting for what you want to borrow.
- You have enough time — 4–8 weeks — to complete the application and approval process before you need the funds.
- You want flexibility: you can draw only the amount needed for a down payment rather than taking a lump sum.
- You plan to keep the line open as a financial cushion after your old home sells.
Because you pay interest only on what you draw, a HELOC can cost significantly less than a bridge loan if you use it strategically and repay it promptly after your sale closes.
When does a bridge loan make more sense?
A bridge loan is worth considering when:
- You need to close on the new home faster than a HELOC application allows.
- Your equity situation or lender restrictions make opening a HELOC impractical on a short timeline.
- You are comfortable with the higher cost in exchange for certainty and speed.
Some lenders structure bridge loans so that no monthly payments are due until the old home sells, which can ease cash-flow pressure during the transition — though this convenience typically comes with a higher rate.
What does each option actually cost?
Costs vary by lender, loan size, and market conditions, but here are the general patterns:
- HELOC: Closing costs are typically from approximately 2–5% of the credit limit, though many lenders offer low-fee or no-closing-cost HELOCs in exchange for keeping the line open for a minimum period. Interest accrues only on the drawn balance.
- Bridge loan: Origination fees often run from approximately 1–3% of the loan amount, plus closing costs. Because rates tend to be higher and the full principal is usually advanced at funding, total interest charges can add up quickly even over a short term.
For homeowners with adequate equity and a reasonable timeline, the HELOC generally comes out ahead on total cost.
What are the key risks to weigh?
Both products carry a common risk: your home secures the debt. If you cannot repay, the lender has a claim on the property.
HELOC-specific risk: Rates are variable. If benchmark rates rise during your transition, your payment could increase. Lenders can also freeze or reduce a line if your home’s value drops.
Bridge loan-specific risk: The balloon structure means the entire balance is due when your home sells — or at the loan’s maturity date, whichever comes first. If the sale is delayed, you may face extension fees or the need to refinance quickly.
How to decide
Work through three questions:
- How much equity do you have? Run the numbers: current home value minus your existing mortgage balance. Lenders typically allow you to borrow up to 80–85% of your home’s appraised value combined across all loans.
- How much time do you have before you need funds? If the new-home closing is more than 6–8 weeks away, a HELOC is usually accessible. If it is sooner, explore bridge loan options in parallel.
- What is your tolerance for rate variability? If a rising-rate environment concerns you, a fixed-rate bridge loan for a short, defined term may feel more predictable — even at a higher starting rate.
Comparing offers from multiple lenders is the most reliable way to understand what each product will actually cost in your specific situation.