Timing is everything in real estate, but things don’t always fall into place as planned. You might be ready to buy your next home, but your current one hasn’t sold yet. Do you wait and risk missing out, or do you move ahead and hope the sale follows quickly?
This is where a bridging loan may be worth considering. In Australia, bridging loans offer short-term funding to support the purchase of a new home while your current property is still on the market. It gives you the flexibility to move forward without being rushed into a quick sale or temporary accommodation.
In this guide, Ausfirst Lending Group explains how bridging loans work, when they might be suitable, and what to consider before applying.
What Is a Bridging Loan?
A bridging loan offers a short-term financing option that allows you to “bridge the gap” between selling your current home and buying a new one. It temporarily covers the cost of your new purchase while you’re still waiting to sell your existing home.
Unlike a standard home loan, a bridging loan assumes you’ll repay most (or all) of the loan once your existing property is sold. These loans are usually interest-only during the bridging period and typically last up to 12 months, depending on the lender.
Bridging finance may suit homeowners who:
- Want to secure their next home quickly
- Don’t want to miss out due to delays in selling
- Need time to sell their home for the right price without rushing
It’s a practical option for buyers who need more time and flexibility between two transactions, but it works best with the right planning and advice.
How Do Bridging Loans Work?
Bridging loans are intended to provide short-term funding that allows you to purchase a new property before your existing one is sold. The structure is slightly different from a traditional home loan and involves two key terms:
Peak Debt: This is the total loan amount, including your new property’s purchase price, your existing mortgage, and any purchasing costs such as stamp duty.
End Debt: The amount left after your home sells and the proceeds reduce the loan balance. This becomes your ongoing mortgage.
Here’s how it typically works:
- The lender adds up your current loan, new purchase price, and costs to get the Peak Debt.
- You make interest-only repayments on this amount during the bridging period to ease cash flow.
- After your home sells, the sale amount reduces the loan, and the rest becomes your regular mortgage.
Most bridging loans in Australia run for up to 6 to 12 months, giving you time to sell your existing property without being rushed. However, lenders usually expect the sale to be completed within that timeframe to avoid extending the loan or triggering additional costs.
Key Features of Bridging Loans
Before deciding if a bridging loan is right for you, it’s worth understanding how they work in practice. From how interest is charged to how much equity you’ll need, these are the key features to keep in mind:
1. Interest rates
Bridging loan interest rates can be slightly higher than standard home loans, though some lenders offer rates comparable to those of their regular variable home loans. Because you’re only charged interest on the Peak Debt during the bridging period, it’s important to factor in how long you’ll need the loan and how soon you expect to sell.
2. Repayment structure
Most bridging loans are interest-only during the bridging period. You won’t be required to make full principal and interest repayments until your current home is sold and the loan switches to a regular mortgage.
Some lenders may allow capitalised interest, meaning repayments are added to the loan balance during the bridging period, reducing your out-of-pocket expenses in the short term. However, this can increase the End Debt if your home takes longer to sell.
3. Loan-to-value ratio (LVR)
The maximum LVR for bridging loans is generally 80%, and this typically includes both your current and new properties. If your Peak Debt goes beyond this threshold, you may need to pay Lenders Mortgage Insurance (LMI), which can add to your upfront costs and reduce the overall value of using bridging finance.
4. Equity requirements
To be eligible, you’ll usually need a strong amount of equity in your existing home. This not only helps keep your LVR within acceptable limits but also improves your borrowing capacity. More equity can make approval easier and may allow you to avoid paying LMI altogether.
Understanding these features can help you weigh up whether bridging finance suits your situation and what to prepare for before applying.
Advantages of Bridging Loans
The benefits of using a bridging loan can be significant if you’re in the right position. It gives you more control over your timing, helps reduce short-term pressure, and can make the transition between properties much smoother.
✅ Flexibility in buying before selling
A bridging home loan gives you the freedom to move ahead with your next purchase without waiting for your current home to be sold. This can be especially useful if you’ve found the right property and want to secure it without delay. It removes the pressure of trying to time both transactions perfectly.
✅ Avoiding rental costs between properties
Bridging finance allows you to settle into your new home as soon as it’s ready. This means you can avoid the added expense and stress of arranging temporary accommodation while waiting for your sale to go through. It also saves you from the disruption of moving more than once.
✅ Potential to take advantage of market conditions
If the property market is moving quickly or prices are trending upward, a bridging loan can give you the chance to buy before conditions change. It lets you act while the timing suits you, rather than being held back by the sale process on your current home.
While bridging loans aren’t for everyone, they may be worth considering if timing, convenience, and market opportunity are high on your priority list.
Eligibility and Application Process
The general requirements for bridging loans are fairly consistent across most lenders. You’ll usually need strong equity in your current home, a clear plan to sell within 6 to 12 months, and enough income to manage the remaining loan once your property is sold. A strong credit history and stable employment also help show that you’re in a good position to repay the loan.
As part of the application, lenders will ask for documents to support your financial position and your plan to sell. While the documentation needed for a bridging loan may vary slightly between lenders, you’ll generally need to provide:
- Contract of sale for the new property
- Estimated sale price (or formal valuation) of your current home
- Proof of income and employment (recent payslips or an employment letter)
- Current mortgage details, including the remaining balance
- Asset and liability summary (any debts, loans, or financial commitments)
- Recent bank statements (to show savings and regular cash flow)
- Sales plan or marketing strategy for your existing property, if available
Why lender assessment matters
Lender assessment is a key part of the bridging loan process. It helps determine how likely your home is to sell, what it may sell for, and whether you can afford the remaining loan after settlement. This assessment shapes your borrowing power and loan structure, which is why working with a mortgage broker can be so valuable.
Wondering how a lender might assess your sale plans or borrowing capacity? Speak with our mortgage broker today to find out which lenders are the right fit for your situation.
Ready to Buy Your Next Home? Let Us Be the Bridge That Gets You There
Bridging loans can offer the freedom to buy your next home without waiting to sell, but they do come with risks. If your current home sells for less than expected or takes longer to sell, you could be left with a higher loan balance than you originally planned for.
That’s why it’s important to plan ahead. Understanding how much you can borrow, what your repayments might look like, and how long you’ll have to sell your current home can make a big difference to your overall outcome.
Buy your next home with confidence. Contact Ausfirst Lending Group to see if bridging finance is the right fit for you.
Frequently Asked Questions (FAQs)
A bridging loan in Australia is a short-term home loan that helps you buy a new property before selling your current one. It covers the cost of your new home and existing loan temporarily, until your old property is sold and the loan balance is adjusted.
Most bridging loans last up to 6–12 months. Some lenders may offer a shorter or slightly longer period, but you’ll typically be expected to sell your existing home and repay the Peak Debt within that timeframe.
The biggest risks include delays in selling your current home or selling for less than expected. This can leave you with a higher End Debt than planned. Interest may also capitalise during the bridging period, increasing your loan balance if your sale takes longer.
In most cases, bridging loans are interest-only during the bridging period. Some lenders let you defer payments until your property is sold, but interest may still accrue and be added to the loan balance.
