current bridge loan rates

Current Bridge Loan Rates in 2023 – What Investors Should Know

Bridge loans are a useful real estate financing tool, allowing investors to access capital quickly for new acquisitions before securing permanent financing. As short-term loans bridge loans typically have higher interest rates than longer-term mortgages. In this article, we’ll look at current bridge loan rates and what investors should know before getting a bridge loan.

What Are Bridge Loans?

A bridge loan is a short-term financing option, usually lasting 12 months or less The purpose is to “bridge” the gap between buying a new property and obtaining permanent, long-term financing

Key features of bridge loans:

• Short term – often 6-12 months
• Higher interest rates
• Can close in as little as 2 weeks
• Use property as collateral
• Often require 10-30% down payment
• Must have exit strategy to pay off loan

Bridge loans allow real estate investors to move quickly to secure deals on new properties before rates and prices potentially rise further. The loans are repaid once permanent financing is obtained.

Current Bridge Loan Rates

As of January 2023, current bridge loan rates range from 10% to 13% for residential properties and 9% to 12% for commercial real estate.

This compares to average 30-year mortgage rates around 6.5%. So bridge loan rates are significantly higher than traditional mortgages.

Exact rates depend on factors like:

• Loan amount
• Loan-to-value (LTV) ratio
• Borrower’s credit profile
• Property type and location
• Loan term and structure

Higher LTVs, weaker borrower profiles, and riskier property types generally mean higher rates. But even for strong borrowers, bridge loan rates tend to start around 9% minimum.

Bridge Loan Rate Trends

Bridge loan rates have increased over the past year along with broader interest rate hikes. In early 2022, average bridge loan rates were between 7% to 9%.

As the Federal Reserve raised benchmark rates to combat inflation, short-term money market rates like LIBOR and SOFR also moved up. Since bridge loans are pegged to these short-term rates, their rates followed suit.

Many lenders also faced higher capital costs, which they passed along to borrowers through rate increases.

However, bridge loan rates have not spiked as high as 30-year mortgages. As of January 2023:

• Average 30-year rate is around 6.5%, up from 3.5% in early 2022
• Average bridge loan rate is around 11%, up from 7% in early 2022

So while bridge rates have climbed 2-4% in the past year, conventional mortgage rates have almost doubled.

Why Are Bridge Loan Rates Higher Than Mortgages?

There are several reasons why bridge loans have notably higher interest rates:

Short-term – Bridge loans are designed for quick turnarounds of 6-12 months. Lenders need to charge higher rates due to the accelerated payback period.

Risk – Bridge loans are riskier with less time to correct issues. Borrowers usually don’t have long credit/employment history.

Costs – Originating short-term loans costs lenders more per dollar lent. These costs translate to higher rates.

Flexibility – Bridge loans offer flexible qualifying, quick closings, and funding for riskier deals. Lenders offset this with higher rates.

Liquidity – Bridge lending requires lenders to keep more liquid reserves, increasing their costs.

The short duration and greater uncertainty make bridge loans a higher risk/reward product for lenders. This leads to consistently higher rates versus 30-year mortgages.

Who Offers The Best Bridge Loan Rates?

The lenders who offer the most competitive bridge loan rates include:

• Private lenders – Private lending firms specializing in bridge loans often offer lower rates through high volume. They also have more flexibility than banks.

• Mortgage brokers – Brokers have access to rates from multiple bridge lenders and can help find you the best deal.

• Local/regional banks – Smaller banks are worth checking for bridge loan rates if you have an existing relationship.

• Credit unions – For very strong borrowers, some CUs offer bridge loans at modestly lower rates.

• Institutional lenders – A few large banks like Citi, Wells Fargo, and JP Morgan can provide bridge loans at reasonable rates.

Online lenders and non-bank alternative lenders are other sources to look into. But specialists like private lenders and brokers are best equipped to secure you the lowest bridge rates.

Tips for Getting the Best Bridge Loan Rate

Follow these tips to help lock in the most favorable interest rate on your bridge loan:

• Shop around – Check rates from multiple lenders rather than going with the first quote.

• Boost your down payment – Larger down payments reduce LTVs and risk, earning you a lower rate.

• Improve your credit – Solid FICO scores of 700+ qualify you for the best pricing.

• Use a broker – An experienced broker can get you lower rates through their relationships.

• Leverage equity – For refinances, maximum equity earns the most competitive rate offers.

• Lock early – Lock your rate as soon as possible after approving the term sheet.

• Shorten the term – Choose a 6-9 month term if you can pay back faster.

• Reduce volatility – Opt for a fixed rate over adjustable to prevent rate spikes.

Alternatives to High Bridge Loan Rates

If you find bridge loan rates too costly, other short-term financing options to consider include:

• Hard money loans – Similar to bridge loans but usually higher rates and fees.

• Home equity loan – Tap equity on an existing property at lower rates.

• Home equity line of credit (HELOC) – Revolving line of credit using your home as collateral.

• 401(k) or IRA loans – Borrow against your qualified retirement accounts.

• Private loans from individuals – Seek financing from high-net-worth individuals.

• Seller financing – Ask the seller to finance a portion of the purchase directly.

Each option carries its own pros and cons to weigh carefully before making a decision. Many real estate investors choose bridge loans as the most flexible short-term financing vehicle.

The Bottom Line

Today’s bridge loan rates generally range from 10% to 13%. While higher than alternatives, bridge loans allow you to pounce on time-sensitive opportunities.

A trusted lender can walk you through the bridge loan process and help minimize your rate through personalized service. They can also keep you updated on the latest market rate moves.

Ready to learn more? Let’s connect to go over your investment plans and bridge loan options.