How bridging loans work

Thinking About Buying Before You Sell?

Looking to upgrade, move locations, or downsize? Maybe you’ve found your dream home and are wondering, “Can I buy it before I sell my current place?”

That’s where a handy thing called a bridging loan can help.

Say what now?

A bridging loan (or bridging finance) is a short-term loan that helps you ‘bridge’ the gap between buying and selling. That means you can buy a new home before your existing one is sold. Handy, right?

What is a Bridging Loan?

Let’s say you’ve found your ideal home, but haven’t sold your current one yet. You don’t want two full mortgages – who does?

That’s where bridging finance steps in. It’s typically an interest-only loan that gives you the funds to secure your new home before your sale comes through. Terms usually range from 6–12 months.

The loan amount depends on your equity, borrowing power, and Loan to Value Ratio (LVR). More on those later.

Why Use a Bridging Loan?

• Found the dream home? A bridging loan lets you act quickly before someone else grabs it.
• Skip the rental shuffle. Avoid moving into a short-term rental between selling and buying.
• Finish renos. Need time to fix up your current home before listing it? Bridging finance buys you time.

How Long Do You Get to Pay It Back?

In Australia, most bridging loans last 6 to 12 months. You repay once your old home settles. If the sale falls short, your bridging loan balance may get added to your new mortgage.

Can a Bridging Loan Be Extended?

Usually, no. It’s designed to be short-term. If you can’t sell in time, your lender may convert the remaining debt into your standard home loan.

Pros of Bridging Loans

• More options. Make offers before selling and buy some peace of mind.
• No temporary housing. Move once, not twice.
• Interest-only repayments. Helps with cash flow during the transition.

Cons of Bridging Loans

• Uncertainty. You’ll feel the pressure to sell, and sell quickly.
• It can get pricey. Two loans at once + higher interest = $$.
• You might not sell. In rare cases, the lender could sell your home for you.

How Does It Actually Work? Meet Matt..

Let’s say Matt’s house is valued at $800,000 and he has $370,000 remaining on his home loan. That gives him $430,000 in equity.

He’s found a new home that costs $1,300,000 – his dream home, no less. Matt uses $130,000 of his equity to cover the 10% deposit, which increases his existing loan to $500,000.

He then applies for bridging finance to cover the gap. His existing $500,000 loan becomes the bridging loan, with a 12-month loan term.

To complete the purchase of the new home, Matt needs $1,235,000. Here’s the breakdown:

• $1,300,000 for the new property
• + 5% stamp duty ($65,000)
• – 10% deposit already paid ($130,000)

This brings Matt’s peak debt to $1,735,000 ($500,000 bridging loan + $1,235,000 for the new purchase).

During the bridging period, Matt makes interest-only repayments on both loans to ease cash flow.

Three months later, he sells his old home for $800,000. He uses this to pay off the $500,000 bridging loan, and the remaining $300,000 goes toward reducing his new mortgage.

That brings his new loan balance down to $935,000 – his end debt. At this point, he switches over to principal and interest repayments on the new loan.

Types of Bridging Loans

Closed Bridging Loan

Set end date. Lower interest. But you’ll need solid proof you can repay it by then.

Open Bridging Loan

No set date. More flexible but higher interest. Useful if your sale timeline is unknown.

How Much Can You Borrow?

It depends on a few things:

• Borrowing capacity: Based on your income and living expenses.
• Equity in your current home: The value of your home minus what you still owe.
• LVR: Usually needs to be 80% or less.

Don’t forget those key terms:

• Peak debt: Total owed before you sell your home.
• End debt: What’s left after your home sells and the bridging loan is paid off.

Do You Still Need a Deposit?

Yep. You’ll need a deposit – either from savings or the equity in your existing home.

Your mortgage broker will help you figure out what’s best.

Are There Alternatives?

• Negotiate a longer settlement. Align your purchase and sale timelines to avoid needing a loan.
• Sell first, buy later. It’s a safer bet if you’re risk-averse.

Still unsure? Chat with a mortgage broker early in the game. It’ll give you options when the right property pops up.

Is It Right for You?

There’s no one-size-fits-all answer. It all depends on your income, equity, risk tolerance and timing.

The good news? Our home loan experts can help you figure out if it’s the right fit for your move.