When you’re buying a new property before selling your current one, or need short-term funding to “bridge” a financial gap, a bridge loan can be a lifesaver. Unlike traditional loans, most bridge loans are not amortized—meaning you don’t make regular payments to gradually reduce the principal balance. Instead, they’re structured differently to provide maximum short-term flexibility.
Below, we break down how non-amortizing bridge loans are structured and what this means for borrowers.
What Is a Bridge Loan?
A bridge loan is a short-term loan (typically 6–12 months) designed to provide temporary financing until permanent financing or the next stage of funding becomes available. These loans are most commonly used in real estate transactions to “bridge” the period between buying a new home and selling your old one.
Structure of Non-Amortizing (Interest-Only) Bridge Loans
Most bridge loans are interest-only. This means you pay only the interest due each month, with the full principal due at the end of the loan term (a structure known as a “balloon payment”).
Here’s how it works:
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No Amortization:
There are no regular principal payments during the loan term. The principal balance stays the same until the end. -
Monthly Interest Payments:
Borrowers make monthly payments that cover only the accrued interest. For example, if you borrow $100,000 at 8% annual interest, your monthly payment is roughly $666.67 ($100,000 × 8% ÷ 12). -
Balloon Payment at Maturity:
When the loan term ends—often after 6 or 12 months—you pay back the full principal balance in a lump sum (the “balloon payment”), typically using proceeds from a property sale or permanent refinancing. -
Possible Fees:
Bridge loans may include origination fees, closing costs, or prepayment penalties, often rolled into the principal or paid upfront.
Example: Typical Bridge Loan Payment Schedule
| Month | Interest Payment | Principal Paid | Remaining Balance |
|---|---|---|---|
| 1 | $666.67 | $0 | $100,000 |
| 2 | $666.67 | $0 | $100,000 |
| … | … | $0 | $100,000 |
| 12 | $666.67 | $0 | $100,000 |
| End | $0 | $100,000 | $0 |
In this example, only interest is paid each month. At the end of the 12-month term, the $100,000 principal is due in full.
Why Aren’t Bridge Loans Amortized?
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Short Term: The main purpose is to cover a financial gap for a short period, not to be a long-term debt.
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Flexibility: Borrowers need lower payments until they can pay off the principal with funds from a sale, refinance, or other source.
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Simplicity: Non-amortizing loans are straightforward for both lender and borrower when the expectation is a quick payoff.
Pros and Cons of Non-Amortizing Bridge Loans
Pros:
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Lower monthly payments (interest only)
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Flexibility to pay off early without amortization constraints
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Quick access to cash for urgent needs
Cons:
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Higher interest rates compared to traditional loans
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Balloon payment risk—must have a plan to repay the full principal at maturity
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Upfront fees and costs can be substantial
What Should Borrowers Watch For?
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Plan for Repayment: Only take a bridge loan if you’re confident you can pay off the full amount when it’s due.
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Check for Fees: Origination and exit fees can add to the overall cost.
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Understand Terms: Know the loan term, interest rate, and conditions for repayment or extension.
Conclusion
Bridge loans offer fast, flexible funding with lower monthly payments—but because they’re not amortized, the entire principal is due at the end. Before you sign, make sure you fully understand the terms and have a clear strategy for repaying the loan to avoid financial surprises.