Bridging loans

How does a bridging loan work?

A bridging loan provides temporary finance that allows you to purchase a new property before the sale of your existing one is complete. Without a bridging loan, you face an uncomfortable timing dilemma: sell first and risk not finding a suitable new home (potentially needing temporary accommodation), or buy first and face the financial strain of holding two mortgages simultaneously.

How the loan is structured

The bridging loan solves this by combining your existing mortgage, the new purchase, and a short-term bridging component into a single facility. During the bridging period, typically 6 to 12 months, you effectively hold both properties. At lenders that capitalise it, interest on the total debt (both properties) accrues and is added to the loan balance rather than being paid monthly, which removes the need to service two separate mortgages from your cash flow.

What happens when your home sells

When your existing property sells, the proceeds are used to repay the bridging component. What remains is your ongoing mortgage on the new property, which reverts to a standard home loan with normal principal and interest repayments. The amount of your ongoing loan depends on the sale price achieved for your old property minus the bridging debt (including capitalised interest).

What is peak debt, and how much does bridging cost?

The concept of "peak debt" is central to understanding bridging loan costs. Peak debt is the maximum amount you owe at the height of the bridging period, typically the sum of your existing mortgage, the new purchase price (minus any cash deposit), plus capitalised interest and fees.

A worked example: peak debt

For example, suppose you own a home worth $900,000 with a $400,000 mortgage and want to buy a new home for $1,100,000. Your peak debt during the bridging period would be approximately $400,000 (existing mortgage) + $1,100,000 (new purchase) - any deposit = $1,500,000. Interest on this peak debt at 9.40% over a 6-month bridging period would be approximately $70,500, which is capitalised and added to the loan.

The end debt after the sale

When your existing home sells for $900,000, the proceeds repay the existing $400,000 mortgage and reduce the bridging debt. Your ongoing loan on the new home would be approximately $1,100,000 + $70,500 (capitalised interest) - $500,000 (net sale proceeds) = approximately $670,500. This is why minimising the bridging period through a well-priced, well-marketed sale campaign is so important, every month of bridging adds capitalised interest to your final loan balance.

Which lenders offer bridging loans, and on what terms?

Bridging is a mainstream product at the major banks and several mutuals, but the terms differ more than most borrowers expect: some charge interest monthly, some capitalise it, and the maximum LVR ranges from 70% to 80%. Checked against each lender's published product page on 19 September 2026. Terms change without notice; confirm the current position with the lender or your broker before relying on it. Where a lender does not publish a figure the cell says so.

When is a bridging loan the right choice?

Bridging loans are ideal in several common scenarios.

Buying in a competitive market

The most frequent is when you find your next home before selling your current one. In competitive property markets, desirable homes sell quickly, and the ability to make an unconditional offer (without a "subject to sale" clause) gives you a significant advantage over buyers who need to sell first.

Downsizing

Downsizers benefit particularly from bridging finance. If you are moving from a larger family home to a smaller property, the sale proceeds from your existing home will typically exceed the new purchase price, resulting in a minimal or zero ongoing mortgage. The bridging loan simply covers the timing gap. The downsizing home loan guide sets buying first against selling first.

Relocating for work

Relocaters, those moving interstate or to a different area for work, also benefit because they can secure housing in their new location before dealing with the sale of their current home, avoiding the disruption of temporary accommodation.

When bridging is riskier

The scenarios where bridging loans are riskier include situations where your existing property may be difficult to sell (unusual or niche properties), when the property market in your area is declining (sale prices may be lower than expected), or when the gap between your peak debt and expected sale proceeds is very tight with little margin for error.

Cheaper alternatives to a bridging loan

If your timing allows, selling first avoids bridging interest altogether, at the cost of possibly renting between settlements. A long settlement on your purchase, 90 to 120 days if the vendor agrees, can let both properties settle on the same day, and where your deposit is tied up in the home you are selling, a deposit bond can stand in for it at exchange for a one-off fee. If you do need a bridge, a closed bridging loan, where your sale has already exchanged, is lower risk for the lender than an open one and may attract better terms.

How do you keep the bridging period short?

The success of a bridging loan arrangement hinges on selling your existing property within the bridging period and at a reasonable price. Several practical steps can improve the outcome.

Get a professional appraisal before applying

Understanding the realistic sale price of your property is essential for calculating the peak debt, the ongoing loan balance, and whether bridging makes financial sense. Get appraisals from at least two local agents.

Engage a selling agent early

Even if you have not yet purchased your new home, having a selling agent ready to list your property minimises the bridging period. Some borrowers list their property before or simultaneously with making an offer on the new property, shortening the overall timeline.

Price realistically

Overpricing your property extends the bridging period and increases capitalised interest costs. A property priced correctly from the outset will sell faster and reduce your total bridging cost.

Consider a pre-sale renovation or styling

Modest investment in presenting your property well can accelerate the sale and potentially increase the sale price, both of which reduce bridging costs.