A bridging loan solves a common timing problem: you want to buy your next property before your existing property sells. Rather than miss out on a purchase or be forced into a rushed sale, a bridging loan provides short-term financing that covers both properties simultaneously.
A bridging loan temporarily finances the purchase of your new property while your existing property is on the market. The structure involves two parts:
For example: You own a property with $300,000 mortgage remaining (worth $800,000). You want to buy a new property for $1,000,000. Your peak debt is $300,000 + $1,000,000 = $1,300,000 (plus costs). When your existing property sells for $800,000 and the $300,000 mortgage is repaid, you net approximately $480,000 (after costs). This clears $480,000 of the bridging loan, leaving an end debt of approximately $520,000 on your new property.
During the bridging period, most lenders do not require repayments on the bridging component — instead, interest is capitalised (added to your loan balance each month). This keeps your cash flow manageable while you carry two properties, but it means your debt grows throughout the bridging period. On a $1,300,000 peak debt at 8% per annum for 6 months, capitalised interest adds approximately $52,000 to your loan balance.
Interest rates on bridging loans are higher: Bridging loan rates are typically 1–2% above standard variable rates, reflecting the additional risk and short-term nature. Combined with capitalised interest on a large peak debt, bridging can be significantly more expensive than it appears at first glance.
Most lenders allow bridging periods of 6–12 months. Some require you to have the existing property listed for sale before approving the bridge. If your existing property has not sold by the end of the bridging term, the lender may require you to sell at auction, extend the bridge at their discretion (possibly at a higher rate), or refinance. This creates genuine time pressure — starting your sale promptly once the bridge is in place is essential.
The primary risk with a bridging loan is an extended sale period or a lower-than-expected sale price:
If you can negotiate simultaneous settlement — selling your existing property and buying the new property on the same day — you avoid bridging entirely. Your conveyancer coordinates both transactions so the proceeds from your sale fund the purchase. This requires precise timing and cooperative parties on both sides, but it is often achievable in private treaty sales where both parties want certainty.
Bridging loan costs typically include: higher interest rate on the peak debt, monthly fees or account-keeping fees, application fees, valuation fees on both properties, and potentially legal fees for the more complex loan structure. Compare these costs against the alternative of a simultaneous settlement or a short-term rental between sale and purchase.
When you move from bridging to a permanent loan, understand the refinancing costs involved.
Read guide →What happens on settlement day and how simultaneous settlement works.
Read guide →Model your end-debt repayments once the bridging period is over.
Calculate →