- Bridging loans allow buyers to purchase a new property before selling their existing one by covering the short-term funding gap.
- Borrowers must be confident they can sell their existing property within the loan term to avoid extra costs.
Sometimes, you find your dream home, and you want to secure it before someone else swoops in - but you don't have the funds or inclination to purchase it because the dust hasn't settled on your old home.
That's where a bridging loan comes in.
What is a bridging loan?
A bridging loan is a short-term financing solution designed to cover brief gaps in funding. Many people use it to buy a new home before receiving the funds from selling their current home.
Think of a bridging loan as a line of credit that covers the gap between buying a new property and receiving the settlement funds from selling your old property.
Typically, a bridging loan is an interest-only home loan with a term of up to 6 or 12 months. The expectation is that you will sell your existing home within this period.
Bridging loans can be arranged quickly, making them ideal for buyers who need to secure a new property swiftly, with some bridging finance lenders able to approve finance in a day.
Who can use a bridging loan?
Bridging loans can be a practical solution for a wide variety of buyers, including:
- Downsizers: With a bridging loan, those who are looking to move to a smaller home can secure one without rushing the sale of their existing property.
- Upgraders: Buyers aiming for a larger or more suitable property but haven’t yet sold their current home can use a bridging loan to avoid missing out in competitive markets.
- Investors: Property investors needing to act quickly to secure a purchase or refinance an opportunity can maximise the flexibility of bridging loans to move fast without being tied to lengthy mortgage approval timelines.
- First‑home buyers: In some cases, bridging loans help first-time buyers enter the property market sooner, particularly if they are coordinating multiple transactions or waiting for funds from another sale.
- Seniors: Individuals moving into retirement or assisted living facilities while waiting for their home to sell or for retirement benefits to begin.
Most bridging loans are only for the purchase of existing property, though some lenders may offer bridging loans for the construction of a new property .
Which lenders offer bridging loans?
Considering a bridging loan? Here are some of the best deals and interest rates available
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
8.19% p.a. | 6.49% p.a. | $3,412 | Interest-only | Fixed | $0 | $230 | 80% |
| Promoted | Disclosure | ||||||||||
8.44% p.a. | 6.77% p.a. | $3,517 | Interest-only | Fixed | $0 | $220 | 80% | |||||||||||||
8.94% p.a. | 6.39% p.a. | $3,725 | Interest-only | Variable | $0 | $1,500 | 70% | |||||||||||||
9.52% p.a. | 9.55% p.a. | $3,967 | Interest-only | Variable | $0 | $300 | 85% | |||||||||||||
9.76% p.a. | 9.92% p.a. | $4,067 | Interest-only | Variable | $10 | $1,002 | 80% |
How do bridging loans work?
When you take out a bridging loan, the loan amount depends on the remaining debt on your old property and the purchase price of your new property. Together, these are called your 'peak debt'.
For example, if you owe $350,000 on your old home and your new home costs $900,000, your peak debt is $1,250,000. Lenders usually let you borrow up to 80% of this amount. They also consider the expected sale price of your old property and selling costs.
When you sell your old home, the remaining debt is called your 'end debt'. For instance, if your peak debt is $1,250,000 and you sell your old property for $650,000, your end debt is $600,000.
The sale proceeds of your old property pay off the existing debt, closing the bridging loan. The remaining debt, mostly for the new property, becomes a standard home loan . You then start making repayments on this new loan, and any extra money from the sale can reduce the principal.
Contact your lender to understand the conditions after the bridging loan period ends.
Lenders may apply a 'fire sale' buffer, reducing your property's estimated value by 10-15% to account for a quick sale at a lower price.
You'll need to pay both your original home loan and the bridging finance during this period. You'll likely need to show you can cover the interest costs of the bridging loan.
When a bridging loan makes financial sense
Bridging loans can be very expensive, but they’re worth it in the right scenario. The biggest benefit is time, they can give you breathing room to sell your existing home (often up to 12 months) and potentially achieve a better sale price, while allowing you to secure your next property now. For a lot of buyers, that removes the stress and FOMO of trying to buy and sell perfectly in the same week.
How to compare bridging loan lenders
When comparing lenders who offer bridging loans, it's important to consider a few key factors:
Interest rates: Interest rates on bridging loans are typically higher than standard home loan rates due to their short-term nature and higher risk. Rates vary between lenders based on factors such as loan-to-value ratio, loan structure, and whether interest is paid monthly or capitalised.
- Comparison rates: Use comparison rates to get a more accurate picture of the total cost, as they include most fees and charges.
Terms and conditions: Bridging loans typically have a term of up to 12 months. If the property isn't sold within this time, lenders may impose higher interest rates or consider the loan in default.
- Additional fees: Borrowers should also be aware of fees such as application fees, valuation fees, and any penalties for early or late repayment. Application fees might vary, and there could be charges for property valuations needed to secure the loan.
When comparing bridging loans, carefully read the product disclosure statements (PDS) for penalty and default clauses. Lenders such as ANZ, Commonwealth Bank, NAB, and Westpac are also key players in the bridging loan market, and their offerings should be evaluated alongside those from smaller lenders like Bank Australia, Heritage Bank, and non-bank lenders like Bridgit.
How do bridging loan repayments work?
During the bridging period, borrowers typically accrue interest on both the existing home loan and the new home loan. Managing principal and interest repayments on a larger debt can be challenging.
Fortunately, many bridging loans require only interest-only repayments, making them easier to manage. Some lenders allow the option to delay repayments by adding the interest to the loan balance, though this means you'll pay interest on the interest.
Additionally, lenders often permit voluntary principal payments during the bridging period, which can help reduce the total interest paid.
What types of bridging loans are available?
There are two types of bridging loans: open and closed bridging loans. Whether you need a closed bridging loan or an open one will depend on where you are in the process of selling your existing property.
Closed bridging loan
A closed bridging loan is used if you already have a contract of sale on your current property and your settlement date is fixed. A closed bridging loan can give you temporary finance so you can buy your new property while you wait for the funds of the sale to come through.
Closed bridging loans are seen as being less risky and they're generally easier to get than an open bridging loan because the sale of your old home has already been 'locked in'.
You can capitalise the repayments into a single sum and pay it once you've received the funding from the sale of your old home.
Open bridging loan
An open bridging loan is used by buyers who have found their dream home and want to secure it even though they haven't found a buyer for their current place of residence. As you can imagine, lenders are a bit more hesitant to offer an open bridging loan because the risk is greater.
Lenders will expect to see details about the new property and proof that you're actually marketing your current home. Many lenders will also insist you have an exit strategy in place in case you can't find a buyer for your current home. It's likely you will also need a significant amount of equity in your current home to draw from.
How long can you have a bridging loan for?
The duration of a bridging loan varies based on its type and the lender. Typically, bridging loans are short-term, ranging from three to 12 months. It's extremely unlikely to find a bridging period offered for longer than 12 months because bridging loans are only a short-term finance solution.
Larger banks often offer longer terms, while smaller lenders may provide shorter durations.
Bridging loan eligibility criteria
To qualify for a bridging loan, lenders typically require:
- Significant equity in your current property: Many lenders prefer to see around 50% equity. This provides a cushion if your property doesn't sell quickly.
- Assurance of selling the existing property within the loan term: While it's hard to predict, many bridging loans are valid for up to 12 months.
- Capacity to manage interest-only repayments during the bridging period: Interest-only repayments are lower, but you will still incur interest costs, which will be considered when your old home sells.
- Availability of bridging loans from your lender: Some lenders only offer bridging loans to existing customers. If your current lender doesn't provide this option, you might need to refinance with a lender that does, especially if you have a longer timeframe or are just considering selling.
Alternatives to bridging loans
Before choosing bridging finance, it’s essential to understand how it compares to other options, including refinancing, temporary renting, and subject-to-sale agreements. Each approach has its benefits, limitations, and suitability depending on your financial situation and property goals.
Refinancing
Thinking of moving to a smaller place, but worried your current home holds you back financially? Refinancing your mortgage can help unlock the equity you've built up, giving you more cash for your down payment on a new property.
This strategy lets you briefly own both homes while you transition. Be aware, though, refinancing usually means higher monthly payments due to a larger principal and interest amount compared to an interest-only bridging loan.
Considering refinancing? Here are some of the best deals on the market.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Renting
One potential solution to the challenge of synchronising property sales and purchases is to rent either your current property or the new one. You could negotiate a short-term lease with either the buyer of your existing home or the seller of your new home. This temporary arrangement could bridge the gap and provide the flexibility needed during the transition.
Subject‑to‑sale contract
A subject-to-sale agreement allows you to buy a new property contingent on the sale of your existing home. While this avoids short-term borrowing, it can be less flexible, harder to negotiate, and may limit your options in competitive markets. You can include this clause in your purchase contract (subject to vendor approval).
Pros and cons
The table below summarises the pros and cons of each option when considering bridging finance compared with other property solutions.
Option | Pros | Cons |
|---|---|---|
| Bridging Loan |
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| Refinancing |
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| Renting While Selling |
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| Subject-to-Sale Contract |
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