Bridging finance lets you buy your next home before selling your current one by using the equity in your existing property as security for a short term loan.
The property market doesn't always move to your preferred schedule. You might find the right home while yours is still on the market, or you need to settle on a purchase before your sale completes. A bridging loan covers the gap between buying and selling so you don't miss out on the property you want or rush a sale at the wrong price.
How Bridging Finance Structures the Two Properties
A bridging loan uses both your current property and your new property as security. The lender calculates how much you can borrow based on the combined value of both properties, minus what you still owe on your existing home loan. Most lenders will lend up to 80% of the total value across both properties without requiring lenders mortgage insurance, though some will go higher depending on your situation.
Consider a buyer who owns a Bulimba home valued around the current median and owes $400,000 on the mortgage. They want to purchase in Hawthorne and need to borrow an additional $650,000. The bridging loan would cover the new purchase while the existing mortgage stays in place. Once the Bulimba property sells, the proceeds pay down the bridging loan and the remaining debt converts to a standard home loan on the Hawthorne property.
The loan to value ratio determines whether you'll need additional security or a deposit top-up. If your combined borrowing sits above 80% of the total property values, you may need to bring in extra funds or accept a higher interest rate on the bridging component.
What You Pay During the Bridging Period
Interest on bridging finance is typically higher than a standard variable interest rate, often sitting 1% to 2% above what you'd pay on a regular home loan. Most bridging loan structures let you capitalise the interest, meaning it gets added to the loan balance rather than paid monthly. This keeps your cashflow manageable while you're carrying two properties.
The bridging loan term is usually six to twelve months, giving you time to sell without pressure. Lenders charge interest daily on the bridging loan amount, so the shorter the bridging period, the lower your total bridging finance costs. You'll also pay establishment fees, valuation fees for both properties, and sometimes an exit fee when the loan is repaid from your sale proceeds.
In our experience, buyers underestimate settlement costs when they're managing two properties at once. You'll need to budget for conveyancing on both the purchase and sale, council rates and insurance on both properties during the overlap, and potentially agent fees if you're still marketing your existing home.
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When Bridging Loan Approval Makes Sense
A bridging loan application works when you have a clear exit strategy and enough equity to support both properties. Lenders want to see that your current property is already on the market or about to be listed, and they'll assess the sale price you're expecting against recent comparable sales in your suburb.
The timing matters. If you're buying at auction or exchanging an unconditional contract with a short settlement, bridging finance gives you fast approval without waiting for your sale to complete. Some buyers in Brisbane's inner east use bridging loans to secure a property in high-demand areas like Morningside or Hawthorne, where stock moves quickly and waiting to sell first means missing out.
Bridging finance also suits buyers who want to renovate their existing property before selling. The loan covers your new purchase, giving you time to improve the property you're selling so it attracts a higher price. The additional sale proceeds offset the bridging loan costs and often result in a better financial outcome than selling in poor condition under time pressure.
How the Sale of Your Existing Property Ends the Loan
When your existing property sells and settlement completes, the sale proceeds go directly to paying off the bridging loan. Your lender will provide a payout figure that includes the remaining loan balance, capitalised interest, and any exit fees. Whatever is left after the bridging loan repayment reduces the debt on your new property.
If your property sells for more than expected, the extra funds can go toward reducing your ongoing loan amount or covering other costs related to your move. If it sells for less, you'll need to cover the shortfall, either from savings or by increasing the loan on your new property if your loan to value ratio allows it.
Lenders usually require you to list your property within a set timeframe after the bridging loan settlement, often within 30 days. They'll also want evidence that the listing price is realistic based on local market conditions. If your property doesn't sell within the agreed bridging loan term, the lender may extend the loan for a fee, increase the interest rate, or in some cases, require you to sell the new property instead.
Bridging Loan Alternatives Worth Considering
A bridging loan isn't the only way to buy before you sell. Some buyers use a deposit bond to secure the new property, then arrange standard finance once their sale completes. This works if your settlement period is long enough to sell your existing home, but it doesn't help if you need to settle quickly or the property you're buying has a short settlement.
Another option is negotiating a longer settlement on your purchase, giving you time to sell before you need to complete. Vendors don't always agree to this, particularly in a strong market, but it's worth raising during negotiations if your circumstances allow it.
If you have access to other funds, such as savings, offset account balances, or family support, you might avoid bridging finance altogether by using those funds for the deposit and arranging a standard loan that assumes your current property will sell before settlement. This approach carries risk if the sale doesn't complete in time, but it avoids the higher bridging loan interest rate and associated fees. For buyers considering alternatives to bridging finance, a refinance of your existing property to release equity before purchasing can sometimes provide the funds you need without the complexity of a bridging structure.
What Happens If Your Property Doesn't Sell in Time
Bridging loan risks include the possibility that your property doesn't sell within the expected timeframe. If you reach the end of your bridging loan term without a sale, most lenders will offer an extension, but this comes with additional fees and sometimes a higher interest rate for the extended period.
In a slower market, you may need to reduce your asking price to attract buyers, which impacts how much you can pay off the bridging loan. If the sale price drops significantly below what the lender expected, you could end up with a higher ongoing loan balance than planned, which affects your borrowing capacity and repayment obligations.
Some lenders include a clause allowing them to force the sale of one of the properties if the bridging period extends beyond a certain point. This is rare, but it's part of the security arrangement and worth understanding before you commit to bridging finance. The key is having a realistic sale price from the start and being prepared to adjust if the market shifts.
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Frequently Asked Questions
How much does bridging finance cost compared to a standard home loan?
Bridging loan interest rates are typically 1% to 2% higher than standard variable rates, plus you'll pay establishment fees, valuation fees on both properties, and sometimes an exit fee. Most bridging structures let you capitalise the interest so you're not making monthly repayments during the bridging period.
How long can a bridging loan last?
Most bridging loans run for six to twelve months, giving you time to sell your existing property without rushing. If your property hasn't sold by the end of the term, lenders may offer an extension with additional fees and potentially a higher interest rate.
What happens if my property sells for less than expected?
If your sale price is lower than anticipated, you'll need to cover the shortfall either from savings or by increasing the loan on your new property if your loan to value ratio allows it. The sale proceeds pay off the bridging loan first, and the remaining amount carries over to your new home loan.
Can I get bridging finance if my property isn't listed yet?
Most lenders require your property to be listed or about to be listed before approving a bridging loan. They'll assess your expected sale price against recent comparable sales in your suburb to make sure it's realistic and that you have a clear exit strategy.
Do I need to make repayments on both loans during the bridging period?
You'll continue making repayments on your existing home loan, but most bridging loans allow interest to be capitalised, meaning it's added to the loan balance rather than paid monthly. This keeps your cashflow manageable while you're carrying two properties.
