A swing loan is a short-term loan, usually lasting six to twelve months, that lets you tap the equity in your current home to buy a new one before the old one sells. It carries a higher interest rate than a regular mortgage, is secured by a lien on your existing property, and is repaid in a single lump sum once that property closes. People also call it a bridge loan; the two terms describe the same product.
How the Loan Is Structured
Your current home is the collateral. The lender records a lien against it and has the right to foreclose if you don’t repay, even if you’re current on your regular mortgage. Most swing loans are set up with interest-only monthly payments during the term, which keeps your cash outflow manageable while your house is on the market. The full principal comes due at the end as a balloon payment, and the sale proceeds are what pays it off.
Interest rates typically run from about 8% to 12%, well above a standard 30-year mortgage. On top of the rate, lenders charge an origination fee of roughly 1.5% to 3% of the loan amount. On a $150,000 loan, that fee alone can run $2,250 to $4,500.
Swing loans fall under the federal Truth in Lending Act, which requires the lender to disclose the annual percentage rate, total finance charges, and other loan costs before you sign.1Office of the Law Revision Counsel. 15 U.S. Code 1601 – Congressional Findings and Declaration of Purpose Because the loan places a lien on your principal residence, federal rules also give you three business days after closing to cancel for any reason.2eCFR. 12 CFR 1026.23 – Right of Rescission That right of rescission doesn’t apply to a loan used to purchase a home, but a swing loan is secured by the home you already own rather than the one you’re buying, so the protection generally does apply.
When People Use One
The most common reason is buying a new house before the current one has sold. A swing loan turns your existing equity into a down payment on the new property, which also lets you submit a non-contingent offer. In competitive markets where sellers routinely reject offers that depend on the buyer selling first, that difference can be what wins the house.
Swing loans aren’t limited to housing. Businesses use them to cover payroll, inventory, or other short-term needs while waiting for a long-term financing round or commercial mortgage to close. The mechanics are the same: fast money now, repaid in full when the expected funds arrive.
What Lenders Require to Qualify
Expect to hand over:
- Current mortgage statements, which establish the equity available in your existing home.
- The signed purchase agreement for the property you’re buying.
- Recent pay stubs, W-2s, or two years of federal tax returns showing you can cover the interest payments.
- A completed loan application, typically the Uniform Residential Loan Application, which pulls your credit and lists your debts and assets.
Lenders generally want a credit score of at least 680 and a debt-to-income ratio no higher than about 43% to 50%. The DTI test matters more than usual here because you may be carrying your existing mortgage and the swing loan at the same time, and eventually the new mortgage too. Fannie Mae’s guidelines require the lender to document that you can handle payments on both properties simultaneously.3Fannie Mae. Bridge/Swing Loans
The loan-to-value cap is typically 80%. The lender won’t lend more than 80% of your home’s appraised value minus what you still owe on your existing mortgage.
How Fast Funding Happens
Speed is the point. Where a conventional mortgage takes 30 to 45 days, a swing loan can often be funded within about 72 hours of approval. Once underwriting clears your file and the appraisal is in, you receive a commitment letter with the rate and closing costs, sign the loan and mortgage documents, and the lender wires proceeds to the escrow or title company handling your new home closing.
The Total Cost, Not Just the Rate
The interest rate is only one piece of what you’ll pay. The full picture usually includes:
- An origination fee of 1.5% to 3% of the loan amount, charged upfront.
- Monthly interest on the outstanding balance. A $150,000 loan at 10% runs roughly $1,250 a month in interest alone.
- An appraisal fee, typically $400 to $1,200 depending on the property.
- Recording and notary fees, generally a few hundred dollars combined and varying by jurisdiction.
A worked example: on a $100,000 swing loan held four months at 10% with a 2% origination fee, you’d pay about $2,000 in origination plus roughly $3,333 in interest. That’s over $5,300 before appraisal and other closing costs, on a loan you held for a third of a year.
Is the Interest Tax-Deductible?
It depends entirely on how you use the money. Under IRS rules, mortgage interest is deductible only if the loan proceeds are used to buy, build, or substantially improve a qualified home, meaning your primary residence or a second home.4Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction Using a swing loan to buy a new primary residence generally qualifies as home acquisition debt, and the interest is deductible.
The IRS treats a mortgage as used to buy a home if the purchase happens within 90 days before or after taking out the loan, with the deductible amount capped at the home’s cost.4Internal Revenue Service. Publication 936, Home Mortgage Interest Deduction For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of total home acquisition debt ($375,000 if married filing separately). That cap is the combined balance across all mortgages on your qualifying homes, so your swing loan and new mortgage together must stay under it for the interest to be fully deductible.
If you use the proceeds for something other than buying or improving a home, such as covering living expenses, the interest is not deductible as mortgage interest even though the loan is secured by your house. Because the mechanics get technical, run your specific situation past a tax professional before counting on the deduction.
Risks Before You Sign
Your Home Doesn’t Sell in Time
This is the risk that undoes people. If your existing home hasn’t sold by the maturity date, the full balloon payment comes due with no sale proceeds to cover it. Some lenders offer a short extension, often 90 days, but you can expect to pay a portion of the accrued interest upfront for that room. If you still can’t repay, the lender can foreclose on the property securing the loan.
Carrying Multiple Payments at Once
During the loan term you may owe your existing mortgage, the swing loan’s interest-only payment, and, once you close on the new property, the new mortgage as well. Add all three together before committing and confirm you could cover them from income alone for the full term.
Higher Cost Per Dollar Borrowed
Between the elevated rate, origination fee, appraisal, and closing costs, a swing loan is meaningfully more expensive per dollar than a conventional mortgage or a HELOC. You’re paying for speed. If speed isn’t essential, one of the alternatives below usually wins on cost.
Cheaper or Simpler Alternatives
Home Equity Line of Credit
If you have time to plan ahead, a HELOC can do the same job for less. Average HELOC rates were around 7.3% in early 2026, versus 8% to 12% for a swing loan, and closing costs are often minimal or zero. The constraint is timing. Opening a HELOC takes several weeks, so you have to apply before you start house hunting, not after you’ve found the property.
401(k) Plan Loan
If your employer’s plan allows loans, you can borrow the lesser of $50,000 or half your vested balance for a down payment.5Internal Revenue Service. 401(k) Plan Fix-It Guide – Participant Loans When the loan is used to buy your principal residence, the standard five-year repayment deadline doesn’t apply.6Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts Rates are typically lower than a swing loan, and the interest you pay goes back into your own account. The trade-offs are lost investment growth on the borrowed amount and the fact that if you leave your job before repaying, the outstanding balance may be treated as a taxable distribution.
Home Sale Contingency Offer
The simplest option is making your offer on the new home contingent on selling your current one. It costs nothing and eliminates the need for bridge financing. In a tight seller’s market it may not fly, since sellers often prefer buyers who can close without conditions. In a balanced or buyer-friendly market, a contingency offer can save you thousands compared with a swing loan.