When you’re buying a new home before selling your current one—or when you need access to your home’s equity for time-sensitive expenses—two popular financing options often come up: Bridge Loans and Home Equity Lines of Credit (HELOCs). Both provide short-term access to funds, but they serve different purposes, have different terms, and come with unique pros and cons.
At SmartKey Lending, we help borrowers decide which financing tool best aligns with their goals, timelines, and financial situations. In this guide, we’ll break down the differences between bridge loans and HELOCs so you can make an informed decision for your next home purchase.
What Is a Bridge Loan?
A bridge loan is a short-term loan designed to “bridge the gap” between selling your current home and buying a new one. It gives you immediate access to funds—usually using your current home’s equity as collateral—so you can move forward with a new purchase before your existing home sells.
Key Features of Bridge Loans:
Term Length: 6 to 12 months (some up to 18 months)
Collateral: Your current home
Repayment: Usually interest-only payments until your home sells, then principal is paid off
Use Case: Buying a new home before selling your existing one
What Is a HELOC?
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by the equity in your home. You can draw from it as needed, repay it, and borrow again, making it ideal for long-term flexibility. HELOCs are commonly used for home renovations, debt consolidation, or bridging a financial gap—including during real estate transitions.
Key Features of HELOCs:
Term Length: Usually a 10-year draw period followed by a 20-year repayment period
Collateral: Your home
Repayment: Monthly payments on interest (and later principal) during draw period
Use Case: Ongoing expenses, renovations, or short-term funding
Bridge Loans vs. HELOCs – A Comparison Table
| Feature | Bridge Loan | HELOC |
|---|---|---|
| Purpose | Buy a new home before selling current home | Flexible funding for home expenses |
| Collateral | Current home (can be combined with new home) | Current home |
| Loan Term | 6–12 months | 10-year draw + 20-year repayment |
| Loan Amount | Based on home equity and sales value | Up to 85% of home equity |
| Interest Rate | Higher (7–12%) | Lower (variable, often prime + margin) |
| Repayment | Interest-only until home is sold | Variable monthly payments |
| Approval Time | Fast (few days to 2 weeks) | Moderate (1–3 weeks) |
| Tax Deductibility | Not usually | Interest may be tax-deductible if used for home improvements (consult tax advisor) |
When to Use a Bridge Loan
Bridge loans are ideal when you’re in the “buy first, sell later” scenario. If you’ve found the perfect home but haven’t sold your current one yet, a bridge loan gives you the liquidity needed for the down payment and closing costs on the new property.
Common Scenarios:
You want to buy in a competitive market without a home sale contingency
You’re relocating and need to secure housing immediately
You’ve already listed your current home but haven’t closed the sale
You don’t want to rush or accept a low offer just to free up funds
Pros of Bridge Loans:
Immediate cash to buy your next home
Avoid contingent offers
Move on your timeline
Interest-only payments during the loan term
Cons of Bridge Loans:
Higher interest rates and fees
Short repayment window (you must sell your current home quickly)
Limited availability based on equity and credit
When to Use a HELOC
A HELOC works best when you’re not under a time crunch to sell your current home or when you want to access cash flexibly over time, not all at once. It’s great for renovations, repairs, or even supplementing a down payment if your current home is not immediately being sold.
Common Scenarios:
You want to tap into equity without refinancing
You need funds gradually, not in a lump sum
You’re planning renovations to increase your home’s value before selling
You want to consolidate high-interest debt
Pros of HELOCs:
Lower interest rates than bridge loans
Interest may be tax-deductible
Flexible borrowing and repayment
You only pay interest on what you use
Cons of HELOCs:
Requires strong equity position
Variable interest rates can increase
Approval process can be slower than bridge loans
Monthly payments begin immediately
Key Considerations for Choosing Between Them
1. Timing
If you need immediate funds to make a non-contingent offer on a new home, a bridge loan is faster and more purpose-built.
If you’re early in the process and can wait for approval and draw gradually, a HELOC works better.
2. Risk Tolerance
A bridge loan carries more financial pressure—you must sell your current home quickly or face balloon payments.
A HELOC spreads out the repayment but can carry variable interest risks.
3. Equity Position
Bridge loans often require a significant amount of home equity and a solid plan for selling the home.
HELOCs typically allow borrowing up to 85% of your home’s appraised value, minus your mortgage balance.
4. Credit Requirements
Both options require good credit (typically 660–700+), but bridge loans may have tighter lending standards due to higher default risk.
Which One Is Right for You?
Here’s a quick guide to help:
✅ Choose a Bridge Loan if:
You’ve already bought or found a home and need fast funds
You’re confident in selling your current home quickly
You don’t want to make contingent offers
✅ Choose a HELOC if:
You’re not under time pressure
You want ongoing access to funds for improvements or upgrades
You prefer lower rates and longer repayment flexibility
At SmartKey Lending, we evaluate your financial situation, home equity, market conditions, and goals to recommend the right solution—whether that’s a bridge loan, HELOC, or another financing product.
