Did you know the difference between a bridge and permanent loan?  We often receive mortgage finance questions about various capital structures and we always enjoy the opportunity to educate our clients, partners and friends.  This post will give you a quick overview of two most common structures utilized by property owners.

Bridge loan is short-term mortgage financing that is in place between the termination of one loan and the beginning of another loan.  Also, a form of interim financing generally made between a short-term loan and a permanent loan, when the borrower needs to have more time before securing the long-term financing.

Community, regional and national banks often specialize in providing bridge loans.  Banks and credits unions raise capital for lending operations through accepting short-term deposits (saving accounts and certificates of deposit).  Bridge loans are structured to be repaid in 12-36 months, so the capital structure aligns effectively with the funding mechanism.

Permanent loan is long-term mortgage financing, usually covering development costs, interim loans, construction loans and financing expenses.  The loan differs from the construction loan because the financing goes into place after the project is constructed and available for occupancy.  A permanent loan is a long-term obligation, generally for a period of 10 years or more, so it is a stark contrast from a bridge loan.

Conduit lenders originate permanent loans, securitize the loans into a trust, and then sell tranches to institutional investors.  The capital markets provide an effective funding mechanism for permanent loans by matching long-term investor capital to borrowers with long-term financing needs.