You've found your next home, but your current one hasn't sold yet. It's one of the most stressful situations in property ownership — and it's exactly what a bridging loan is designed to solve. But bridging finance comes with risks, costs, and conditions that aren't always made clear upfront. Here's everything you need to know before taking one on.
What is a bridging loan?
A bridging loan is a short-term loan that "bridges" the gap between buying a new property and selling your existing one. It allows you to purchase your next home before your current property has settled — without having to wait for sale proceeds to come through first.
Bridging loans are typically offered for terms of 6 to 12 months, though some lenders extend to 24 months. Once your existing property sells, the proceeds are used to pay down the bridging loan, and you're left with a standard home loan on your new property.
In plain terms: A bridging loan lets you own two properties at once — temporarily — without needing to sell first. You take on additional debt for a short period, then reduce it when your old home settles.
How a bridging loan works — step by step
Pre-approval for your new purchase
Your lender assesses your full financial position and conditionally approves the bridging structure — including the peak debt (your existing loan plus the new purchase price) and the projected end debt (what will remain after your existing property sells). This gives you confidence to move forward before you've found a property.
Offer accepted — formal finance approval
Once you've signed a contract on your new home, your lender moves to formal (unconditional) approval. Both properties are valued, and the full bridging loan structure is confirmed in writing.
Settlement of your new purchase
You take ownership of your new property. If your existing loan is with a different lender, it may be refinanced across to the bridging lender at this point. During the bridging period, you typically make interest-only repayments on the peak debt portion, plus normal repayments on the refinanced existing loan.
You sell your existing property
Once your existing home settles, the net sale proceeds are applied directly to reduce the peak debt. The bridging period officially closes, and the remaining balance becomes your end debt.
End debt — back to a standard home loan
With the sale complete, you revert to a regular home loan on your new property for the remaining end debt amount. Normal principal-and-interest repayments resume from here.
Example: You owe $300,000 on your current home and are purchasing a new property for $700,000. Your peak debt is $1,000,000. You sell your existing home for $600,000 net. After the sale, your remaining (end) loan is $400,000 — which becomes your standard home loan on the new property.
The two types of bridging loans
Closed Bridging Loan
Used when you've already exchanged contracts on the sale of your existing property. There's a known settlement date.
- Lower risk for lender
- Usually lower interest rate
- Fixed end date known upfront
- Less common in Australia
Open Bridging Loan
Used when your property is listed but not yet sold. There's no confirmed settlement date for the existing home.
- Higher risk — sale timing uncertain
- Typically higher interest rate
- More common option in Australia
- Usually capped at 6–12 months
How interest is charged
This is where bridging loans get a little different from standard home loans. Most lenders capitalise the interest during the bridging period — meaning you don't pay it month to month. Instead, it accumulates on top of your loan balance and is paid off when your old property sells.
Capitalised interest explained:
• You don't make repayments on the full peak debt during the bridging period
• Interest accrues daily and is added to the loan balance
• When your property sells, the accrued interest is paid off along with the principal
• Some lenders allow interest-only repayments on the existing loan portion during the bridging period
• Bridging loan rates are typically 0.5%–1.5% higher than standard variable rates
Interest cost example: You have a peak debt of $1,000,000 at a bridging rate of 7% p.a. If your bridging period is 6 months, you'll accumulate roughly $35,000 in interest before your sale settles. This gets added to your loan balance and paid off from the sale proceeds — so it quietly inflates your costs if you're not prepared for it.
The key numbers lenders look at
| Metric | What It Means | Typical Lender Limit |
|---|---|---|
| Peak Debt LVR | Peak debt ÷ combined property values | Up to 80% (some lenders 75%) |
| End Loan LVR | Remaining loan after sale ÷ new property value | Must be serviceable at standard rates |
| Bridging Period | Time allowed to sell existing property | 6–12 months (some up to 24) |
| Serviceability | Your ability to repay the end loan | Assessed on end loan, not peak debt |
| Valuation | Lender's independent valuation of both properties | Required on both properties |
Advantages and disadvantages
✓ Advantages
- Buy before you sell — no need to move twice or rent in between
- Negotiate from strength — you're not a "subject to sale" buyer
- Avoid underselling due to timing pressure
- Capitalised interest means no repayments on peak debt
- Can move at your own pace in a difficult market
✗ Disadvantages
- Higher interest rates than standard home loans
- Capitalised interest can significantly inflate total debt
- If your property doesn't sell in time, you may be forced to sell at a lower price
- More complex to arrange — not all lenders offer them
- Fees are typically higher — application, valuation, legal
When does a bridging loan make sense?
✓ Good candidate for a bridging loan if you:
Have strong equity in your existing property and a realistic sale price. The more equity you have, the lower your risk if the sale takes longer than expected.
Are buying in a competitive market where making a "subject to sale" offer would put you at a disadvantage — or where the property you want won't wait.
Have a realistic, well-priced property that should sell within the bridging period. An overpriced home on a slow market is a major red flag here.
Can comfortably service the end loan without needing to rely on a specific sale price to make the numbers work.
⚠️ Think carefully before proceeding if:
Your existing property is in a slow or declining market, or if it has features that limit its appeal (small land, unique location, unusual configuration). The longer it takes to sell, the more interest capitalises.
Your end loan serviceability is tight. Lenders will stress-test the end loan — if you're borderline, you may not qualify.
You need a very specific sale price to make the purchase work. If your assumptions on sale price are optimistic, you could end up with a larger end loan than expected.
Costs to budget for
Typical bridging loan costs include:
• Interest rate premium: 0.5%–1.5% above standard variable rates
• Application/establishment fee: $500–$1,500
• Valuation fees: $300–$600 per property (two valuations required)
• Legal/settlement fees: Standard conveyancing on both properties
• Capitalised interest: Depends on your peak debt, rate, and how long the bridge runs — can easily be $20,000–$50,000 over 6 months on a large loan
• Discharge/exit fees: Check whether your existing lender charges these when your current loan is paid out
Alternatives to consider
A bridging loan isn't your only option when timing doesn't align perfectly. Depending on your situation, one of these alternatives may suit you better:
Sell First, Buy Second
The safest option financially. You know exactly what you have to spend and avoid peak debt entirely.
- Negotiate a longer settlement on your sale
- May need short-term rental between properties
- Removes all timing risk
Subject to Sale Offer
Make your purchase conditional on your existing property selling first.
- Sellers may not accept this condition
- You may lose the property to another buyer
- No bridging finance required
Equity Access / Deposit Bond
Use a deposit bond or access equity from your current property to fund the deposit only, without a full bridging loan.
- Suits buyers with high equity
- Lower costs than full bridging
- Still need to settle on full purchase price
- Loan servicing can restrict you
Negotiate Settlement Dates
Try to align the settlement of your sale and purchase so there's minimal (or zero) overlap.
- Requires flexibility from all parties
- Can avoid bridging entirely
- Often easier in a buyer's market
The bottom line
Bridging loans can be a powerful tool when used in the right circumstances — but they're not a one-size-fits-all solution. The cost of capitalised interest, higher rates, and the pressure to sell within a fixed window mean they're best suited to borrowers with strong equity, realistic sale expectations, and a clear plan.
A bridging loan could be right for you if: You have solid equity, a well-priced property in a reasonable market, and you're buying competitively where a "subject to sale" condition would cost you the deal.
Consider alternatives if: Your sale timeline is uncertain, your equity is modest, or your end loan serviceability is tight. The worst outcome is being forced to sell under pressure at the end of a bridging period.
Either way: Run the numbers carefully. Calculate your expected capitalised interest based on realistic — not optimistic — sale timelines. A mortgage broker can model different scenarios and compare bridging products from multiple lenders to find the best fit for your situation.