Interim Financing
Definition and meaning of Interim Financing in real estate.
Interim financing is a short-term loan used to cover expenses until long-term, permanent financing can be secured or an asset is sold.
In more detail
In real estate, this typically takes the form of a construction loan or a bridge loan. For home builders, interim financing pays for land acquisition and construction costs, and it is later replaced by a permanent mortgage once the home is complete. For home buyers, interim financing helps bridge the gap between selling their current home and purchasing a new one.
These loans generally carry higher interest rates and fees because they are short-term and carry more risk for the lender.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Also known as | Bridge loan, swing loan, or temporary financing |
| Typical duration | Six months to three years |
| Key risk | Higher interest rates and short repayment windows |
A family uses a bridge loan as interim financing to buy their new house before their current house sells, planning to pay off the bridge loan as soon as the sale closes.
Frequently asked questions
How does interim financing differ from a permanent mortgage?
Interim financing is temporary, often interest-only, and designed to cover immediate cash needs, whereas a permanent mortgage is a long-term loan paid off over fifteen to thirty years.
Is interim financing harder to qualify for?
Yes, because of the short-term nature and higher risk, lenders often require strong credit, significant equity, and a clear exit strategy, such as a pending home sale.