Scenario:  Your client’s closing date for the purchase of their new home is August 1 and the closing date of the sale of their old home is August 15.  They need the equity from their old home for the down payment of their new home.

Solution:  Bridge Financing.

Costs:  Reasonable!
It varies but there will be a fee of $250-$400 plus interest (P+2% or P+3%).  Note that the bridge loan is only the amount of down payment minus deposit so interest costs are minimal.   There will also be an extra  fee from the solicitor.  Things to note: 
  1. Usually lenders want less than 30 days difference on the dates.
  2. The payments for the long term mortgage are not affected by bridge financing.  For example the client's regular mortgage payment is on payment schedule.
  3. The buyer must still pay the property transfer tax, legal fee and other closing costs upfront from their cash resources.
  4. The buyer must stay with the lender that they do the bridging with. For example they might have a 5 yr variable with that lender.
  5. A low cost bridge finance must have 2 firm, subject free contracts otherwise we take the mortgage to a private lender and the costs increase dramatically.
  6. Application must be otherwise strong.
  7. Some clients have a false impression about bridge financing until details are explained to them. When handled properly bridging is very convenient for some clients
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Assignment of the GST Rebate is crucial to buyers who have a small down payment (high ratio mortgage) or just enough down payment to make the 20% down payment threshold to avoid paying mortgage default insurance.
Mortgage lenders will lend based on the purchase price plus net GST.  They will not lend based on the rebate amount of GST added.

GST is paid in one of two ways.

  1. The client pays the full GST upfront on closing day and receives the GST rebate about 3 months later.
  2. The builder has the GST assigned.The client then pays the net GST upfront and never has to worry about funding the rebate until the cheque comes in the mail.

Builders vary in whether they have the GST assigned.  In a few cases, I have asked realtors to require in the offer to purchase that the GST is assigned to the builder. I only ever asked a realtor to do this when I knew that the client would not be able to close without having the GST assigned. 
Note that the rebate is applicable to purchase price of less than $450 000.  And the amount of rebate at $440 000 is small at $630.  If the purchase price is $350 000, then the rebate is significant at $6300.  Obviously the amount of rebate will help you determine if you should ask for the GST to be assigned.  I use the following calculator to determine  the amount.

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