What is a Bridging Loan? And When Would You Need One?
Buying and selling property rarely lines up perfectly. The logistics of it all can be incredibly stressful. If you’ve found the perfect next home but haven’t sold your current one yet, a bridging loan can make your move easier, without having to wait on your current property sale.
What is a bridging loan?
A bridging loan is a short-term loan that gives you the funds to buy a new property before your current property has sold. It’s designed to bridge the gap between buying and selling.
These loans are generally interest-only and are typically offered for up to 12 months, giving you time to sell and settle on your current home while already owning the next one.
When would I need a bridging loan?
You might consider bridging finance if:
- You’ve found your next home but haven’t yet sold your current one.
- You want to avoid renting or moving twice between sales.
- You want more time to prepare your home for market to get the best sale price.
- You're building a new home while still living in your existing one.
How does it work?
- Peak Debt: The lender combines your current mortgage, the cost of the new property (including stamp duty and legal fees), and any interest (if it’s being capitalised). This total is known as your Peak Debt.
- Interest Only: During the bridging period, you’ll typically pay interest only — or the interest may be capitalised (meaning it’s added to your loan rather than paid upfront).
- Sell Your Property: Once you sell your existing home, the sale proceeds are used to reduce your Peak Debt.
- End Debt: The remaining balance becomes your End Debt, which then continues as a standard mortgage.
An example of a bridging loan.
- Your current home loan = $200,000
- New home = $800,000
- Total bridging loan (Peak Debt) = $1,000,000
- After selling your home for $600,000, that amount is used to pay down your loan
- Remaining loan (End Debt) = $400,000
Things to consider.
Like any major financial decision, it’s important to understand all the moving parts before you commit.
- Time pressure: You typically have 6–12 months to sell. If you don’t sell in time, the lender may step in to sell the property and/or charge default interest. This is an extra interest rate that a lender charges when you fail to meet your loan obligations — in this case, not selling your property within the agreed timeframe.
- Interest costs: If interest is capitalised, it means you're not making repayments during the loan period, so the interest gets added to the loan balance instead of being paid separately. This means your loan grows each month. Making even small repayments can help keep this under control.
- Equity & serviceability: Lenders will assess how much equity you have and whether you can manage the loan during the bridging period.
- Loan-to-value ratio: If your End Debt ends up being more than 80% of the new property’s value, you may have to pay Lenders Mortgage Insurance (LMI).
- Existing loan setup: If your current lender doesn’t offer bridging loans, refinancing may be required — sometimes triggering break fees if your existing loan is fixed. This means you may have to pay a penalty if you end a fixed-rate home loan early (before the agreed term is up).
Is a bridging loan right for you?
That’s the big question. Bridging finance can offer flexibility and peace of mind, helping you move forward with confidence rather than being held back by uncertain sale timing. But it’s not without risk or cost — so it’s vital to understand the structure, timeframe, and repayment expectations.
If you’re considering your next property move and want tailored advice on whether bridging finance suits your situation, talk to the team at Ascent Property Co. or Ascent Accountants. We can also put you in touch with finance brokers to discuss what is best for you.
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