Homeowners have the possibility of borrowing money using their current home as security for a bridge loan and HELOC (home equity line of credit). Both loans give the borrower money depending on their home’s equity. One major distinguishing factor between these two loan types is how the loan funds can be used.

As is evident from their name, bridging loans are only used to “bridge” the difference between the home loan one is given and the value of their new property, i.e., to make the down payment on their new purchase. On the other hand, HELOCs can be used for the above purposes and many others.

One of the main risks of using these loans is the chance of a homeowner losing the house if they cannot repay their loan. Contrastingly, if one can afford the repayment options of these loans, they can provide an excellent financial instrument to achieve their objective. It is important to note that while banks might request security for both types of loans, moneylenders only offer unsecured bridging loans.

Bridge Loan vs HELOC

Bridge loans and HELOCs are comparable in that they can be used to help a buyer pay for the down payment of a new property while they wait for sale proceeds from the sale of their existing home. Also, these loans will require the borrower to provide collateral, especially when borrowing from banks. Nonetheless, there are several differences between the two.

A borrower’s option to go for a HELOC or bridging loan depends on the loan requirements, the application process and other parameters, how they fit them, and their needs. To easily discern the differences between these loans, let us take a look at the comparison table below:

Comparison Table



Bridging Loan

Use of Loan

  • Anything the borrower wants, including a down payment for a new property.
  • Only to make a down payment for a property purchase.


  • Interest is only charged on funds used. The rate is usually less than 5%.
  • Banks: An interest rate is charged on the entire loan proceeds. The rate is 6-10% 
  • Moneylenders: 1-4% per month

Loan Tenure

  • It can be up to 10 years.
  • Banks: Typically up to 6 months
  • Moneylenders: one month or up until the sales proceed to completion.

Loan Disbursement

  • Revolving credit until one reaches the limit set.
  • Lump sum payment

Total Loan Amount

  • 80% of the equity the borrower has in the home.
  • Banks: Up to 20% of the LTV ratio of their new property value.
  • Moneylenders: Up to 6x your monthly salary

Let us look at an in-depth view of the different parameters of these two loans to see how similar and different they are.

1. Loan Use

Bridging loans are designed to finance closing costs or to help a buyer pay the down payment deposit on their new property as they wait for the sale of their existing property to be completed. Unlike most bridge loans, HELOC funds can be used for anything. They can be used for similar purposes as most bridge loans.

2. Loan Amount

Several factors might affect the loan amount of a bridge or HELOC loan. Some of these may include the home equity available to the borrower, the value of their new purchase, their credit score, and the lender, among others.

In most cases, HELOC loans are 80% of their home’s equity. For example, if the borrower has a property valued at $1,000,000 but still owes a loan of $600,000, then the home’s equity is $400,000. The HELOC funds they can get is 80% of $400,000, equating to $320,000.

On the other hand, a bank will typically give a bridging loan of around 20% of the value of the property one is looking to buy. For example, if the borrower is looking to purchase a property valued at $1,000,000, the loan will be 20%, equating to $200,000.

On the other hand, licensed money lenders offer a bridge loan amount of up to six times the borrowers’ monthly income. For example, if a borrower each has a monthly income of $12,000, they are entitled to a maximum loan amount of $72,000.

3. Typical Interest Rate

The interest costs for these two interim financing options vary. Bridging loan rates also differ from one lender to the next. The standard rate from banks is usually between 6-10% per annum, while licensed money lenders offer a higher interest rate of 1-4% per month. The average interest rate of line of credit HELOC is lower than bridging loans. It is usually below 5% per annum.

Generally, bridging loans have higher interest rates than HELOCs because there is more risk involved.

4. Loan Tenure

The loan tenure of bridge loans is way shorter than that of HELOCs. Bridge loans must be repaid in one month or until the property’s completion date. HELOC, on the other hand, has a tenure of up to 10 years.

5. Collateral

In both cases, the loans will require that the borrower provides collateral for their loans. However, it is essential to note that bridge loans from money lenders, unlike banks, will not require any security.

6. Loan Disbursement

A bridge loan can give homeowners more money in one lump payment than a HELOC loan. Homeowners have additional alternatives with HELOCs all through the drawing period. Depending on the borrower’s preferences, HELOC payments can be made in large or modest amounts.

HELOC money is continuously accessible. Like a credit card, the bank determines the amount a borrower is permitted to spend. As long as they continually make full payments after each billing cycle, the borrower may borrow more funds overall from a HELOC loan in the long term.

Nevertheless, since the equity used as security is gone if a HELOC loan is used to buy a new home while also selling a listed unit, most lenders require borrowers to repay the HELOC loan immediately after completing the transaction.

Bridge Loan vs HELOC: Which one should you pick?

One should take a bridge loan if one wants a significant upfront amount to use to make a down payment on a new property. They can take a HELOC loan if they want an option with a more extended repayment period or funds that can be used for anything.

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More on Bridge loan

Bridge loans can be a great source of temporary financing when buying and selling a home simultaneously. A bridge loan can provide short term financing until your current house is sold, and you can use the funds to pay it off. Additionally, you can also apply for a temporary bridging loan for your business to keep your business afloat or expand.

Both banks and licensed moneylenders offer this loan. However, you should note that while the purpose of the loan is the same in both cases, they may have several differences.

One of the main differences is that banks will require the borrower to provide enough equity to secure the loan, and money lenders do not require any collateral. Also, because banks require collateral, they charge lower interest rates than moneylenders.

Furthermore, the processing time is much shorter with moneylenders than with banks. Moneylenders can process a bridge loan within a day, while it may take several weeks for banks.

Banks also offer a considerably larger loan amount than moneylenders. While most lenders provide up to 6 times the borrower’s monthly income, banks can offer up to 20% of the new property’s value.

When to Use a Bridging Loan

A bridging loan can be a good option if you are selling an existing property and still want to secure the down payment for a new property. In such a case, one can use the bridging loan to make the payment as one waits for the building to be bought.

Pros of a Bridge Loan

  • It has more flexible requirements, especially when applying for a loan from money lenders.
  • It can be processed quickly; this is mainly the case with moneylender bridge loans.
  • Provide a lump sum amount immediately after approval to help the buyer make a down payment for their next property.

Cons of a Bridge Loan

  • Bridge loans typically have higher interest rates compared to other loan types.
  • They have a shorter repayment period.
  • The bank loan’s appraisal fees and closing costs can increase its overall cost.

Where and How to Apply for a Bridge Loan?

One can apply for a bridge loan from a moneylender or a bank. One should ensure they consider all crucial parameters when selecting the provider.

Once one has found the right loan provider for their needs, they should follow all the edibility and requirements they stipulate to ensure they have a better chance of getting approved.

More on Equity Lines of Credit?

This is a revolving credit option that a borrower is given based on the value of the equity they have in their home. It is usually 80% of the available equity.

When to Use a HELOC

It can be used to do anything the borrower desires, including making a down payment of a property, education, home purchase, clearing any outstanding balance, or any other.

Pros of HELOC

  • It has lower interest rates, less than 5%.
  • The flexibility of loan use since the funds can be used for anything.
  • More extended repayment periods of up to 10 years.
  • Offers tax deductible interest payments for all the accumulated interest on the loan.
  • Very low administrative fees
  • The repayment period starts after the draw period ends.

Cons of HELOC

  • The borrower needs financial discipline since they are similar to credit card loans.
  • Security is needed
  • Variable interest rates might increase, leading to the borrower paying more interest.

Where and How to Apply for HELOC?

To apply for a HELOC, one should follow the rules and requirements provided by the provider.

Alternatives to Bridge Loans and HELOCs

1. Home Equity Loans

Like HELOC, a home equity loan also taps into the borrower’s home equity available. However, the main difference is that the loan is disbursed as one lump sum payment. They also have a predetermined repayment period and fixed interest rate.

2. Cash-out Refinances

This loan gives the borrower a higher loan than they owe on their home equity. The funds can be used for anything.

3. Personal Loans

These loans can be used in whatever way the borrower sees fit. Banks and moneylenders offer them. While banks will look at the credit history to determine whether or not to approve a loan, money lenders do not. The moneylenders also process loans in a single day, while banks might take more than a week.


A HELOC can be used as an alternative for a bridge loan, especially when the borrower is looking to make a down payment on a house. Despite this, there are a few differences the borrower should be aware of. Here are the major ones:

  • A bridge loan is an excellent option if one wants a lump sum to make a down payment on a new house.
  •  A HELOC is an excellent option if you are looking for a loan with a more extended repayment period and can be used for anything you would like.
  • Money lender loans provide an excellent alternative to bridge loans since they have lenient requirements and faster processing time. Also, their loan options do not require creditworthy borrowers to provide collateral.

Finding suitable loans for your needs should no longer be a complex task since Fortune Credit offers a variety of loans to help you achieve your financial goals. Contact us today to see the fantastic quotation we can provide to help you choose a loan option that is both affordable and right for your financial situation.