Home loans

Bridging loan

Buy the next home before you sell this one.

Who this is for

You have found the right next home before your current one has sold, or you are building while living in the home you own. A bridging loan means you do not have to let the right property go.

It comes up most for people upsizing in a moving market, downsizers who do not want to rent between two homes, and anyone building on a new block while still living in the old house. The common thread is a timing gap, not a shortage of equity.

Peak debt, and why it is the number that matters

A bridging loan is a temporary loan that funds the new purchase while your existing property sells. During the bridging period there are usually no repayments: interest is added to the loan, and the proceeds of your sale pay it down at settlement.

Peak debt is what you owe at the top: the balance still owing on your current home, plus the full purchase price of the new one, plus stamp duty and costs. For a short period you are carrying both properties. Lenders assess the whole of it, which is why bridging is available to fewer borrowers than an ordinary mortgage.

End debt is what remains once your old home sells and the net proceeds are applied. That is the figure that turns into a normal mortgage on the new home, and it is the one that has to be comfortable for the next twenty years.

Because nothing is repaid in between, interest is added to the balance and then itself attracts interest. Over six months on a large peak debt that compounding is not trivial, which the example below sets out plainly.

How the process runs

Bridging is arranged on the same timeframes as an ordinary purchase, but the sequence is tighter because two settlements are involved. The steps below are indicative; settlement dates are set between the parties and their solicitors, not by us.

The numbers first. Before you bid, we work out peak debt and model the end position against a conservative sale price rather than the one you are hoping for.
Application. The lender assesses the full peak debt against its own criteria and values both properties. The valuation of your existing home is what the sale expectation is tested against.
The lender decides. If approved, formal approval is issued and documents follow. Approval is the lender's decision alone, and it is never certain until it is given.
The new purchase settles. The bridging loan funds it, and the bridging period starts. Interest accrues and is added to the balance rather than repaid.
Your old home sells. Net proceeds are applied to the loan, the bridge closes, and what remains converts to an ordinary mortgage on the new home.

What to watch

Bridging periods typically run six to twelve months, and the risk sits in the sale. If your existing home does not sell within that window, or sells for materially less than expected, the end debt is larger than planned and the shortfall is yours. Extending the period is the lender's decision rather than a right you hold.

Serviceability is assessed against the end debt. Where the sale clears the loan and no residual debt remains, serviceability is generally not required. Where an end loan remains, your financial position is assessed on servicing that end loan.

Lenders will generally lend up to 80% of the combined value of the new and existing residential properties during the bridging period, or up to 70% to 75% of the combined value where the security is commercial property.

Peak debt to end debt

The figures below follow one bridge from the day the new home settles to the day the old one sells, with the sale priced conservatively rather than optimistically. They are a worked illustration, not an offer, a quote, or a prediction of your result.

Existing home value: $900,000
Still owing on it: $300,000
New home purchase price: $1,100,000
Stamp duty and purchase costs: $55,000
Peak debt: $1,455,000
Rate: 7.40% p.a.
Bridging period: 6 months
Interest added to the loan: $54,672
Sale price achieved: $880,000
Less selling costs: $22,000
End debt on the new home: $651,672

Illustration only. Assumes no repayments during the bridging period with interest capitalised monthly, one rate held throughout, a sale at $20,000 below the appraised value, and selling costs of $22,000. If the sale takes longer or achieves less, both the interest and the end debt increase. The rate shown is an example used to demonstrate the calculation, not a rate available to you or offered by any lender.

What it costs

Bridging carries the ordinary costs of buying, plus the cost of holding two properties at once:

Capitalised interest on the full peak debt for the whole bridging period. This is the largest cost and the one people underestimate, because nothing leaves your account while it accrues.
The bridging rate. Some lenders price bridging above their standard variable rate, others do not. It varies, and it is worth comparing across the panel rather than assuming.
Two valuations, one on the property you are buying and one on the property you are selling.
Stamp duty and purchase costs on the new property, payable at its settlement rather than after your sale.
Selling costs on the old property: agent commission, marketing, conveyancing. These reduce the net proceeds that clear the bridge.
Holding costs on both homes during the overlap: rates, insurance and utilities on two properties.

Do I qualify

Bridging is assessed more conservatively than an ordinary purchase because the lender is carrying two properties:

Substantial equity. Lenders generally want peak debt to sit comfortably under the combined value of both properties, and they apply a discount to the expected sale price rather than taking it at face value.
End debt serviceability. You must be able to service the loan that remains after the sale, tested at an assessment rate above the actual rate. Some lenders also test your ability to service peak debt.
A credible sale. A property that is genuinely saleable in its market, supported by the valuation. An unusual property in a thin market is harder to bridge against.
A defined bridging period. Usually six months for an established home, up to twelve where you are building.
Clean credit conduct on your existing mortgage and other commitments.

Not every lender offers bridging, and those that do differ considerably on how they treat the expected sale price. That is most of the value in shopping it properly.

Everything on this page is general information about how bridging loans work in Australia. It does not take your objectives, financial situation or needs into account, and it is not a recommendation that you borrow.

Nothing here is an offer of credit. No rate, cost, timeframe or outcome described above is guaranteed. Any recommendation we make follows a full assessment of your circumstances, and approval, pricing and conditions are decided by the lender against its own criteria. Where a decision touches on tax, superannuation or estate matters, we work alongside your accountant, financial adviser or solicitor rather than in place of them.

Bridging carries a risk most home loans do not: if your existing property sells for less than expected, or does not sell within the bridging period, the shortfall is yours to cover. No sale price, sale timeframe or extension of the bridging period can be guaranteed by us or by the lender.

Common questions

What happens if my old home does not sell in time?

This is the main risk of bridging and it is worth being clear about. Interest keeps accruing on the full peak debt, so the end debt grows. Some lenders will extend the bridging period where the property is genuinely on the market and progress is being made, but an extension is the lender's decision, not something you are entitled to. If no extension is granted you may face pressure to accept a lower sale price. This is why we test the numbers against a conservative price before you commit rather than after.

Do I make repayments during the bridging period?

Usually not. Most bridging loans capitalise the interest, meaning it is added to the loan balance rather than paid monthly, and the sale proceeds clear it at settlement. That keeps your cash flow manageable while you are effectively holding two homes, but it also means the debt is growing the whole time and the interest itself attracts interest. Some lenders offer interest-serviced bridging instead, which costs less overall if you can afford the payments.

How long can a bridging loan run?

Commonly six months where you are selling an established home, and up to twelve months where you are building. The period is set at approval and it is a term of the loan rather than a guide. Building the timeline around a realistic marketing and settlement period, rather than the fastest plausible one, is the single most useful thing you can do at the start.

How much equity do I need?

Enough that peak debt sits comfortably under the combined value of both properties, with room for the sale to disappoint. Lenders vary in where they draw that line and most apply a discount to the expected sale price rather than accepting it at face value. As a general shape, bridging suits people with substantial equity in the property being sold, not people stretching to their limit on both.

Is bridging better than selling first?

Not usually, on cost or on risk. Selling first and renting, or negotiating a long settlement on the purchase, avoids capitalised interest and removes the sale-price risk entirely. Bridging earns its place when the right property has appeared at the wrong time and the alternative is losing it. We would rather talk you through both than assume bridging is what you need.

Can I use a bridging loan to build?

Yes. Bridging while building lets you stay in your current home during construction and sell it once the new house is finished. The bridging period is typically longer, up to twelve months, and the structure is more involved because the construction drawdowns and the bridge run alongside each other. It needs planning further ahead than a straightforward purchase.

Talk this through with a broker

Send your details and we'll come back to you with what these numbers mean for your borrowing, usually within one business day.