Most people sell their old home first, then buy the new one. The money from the sale comes through, and that becomes the deposit on the next place. Simple, when it works.
But sometimes the right home comes up before your current one has sold. Or you want more time to sell at the right price instead of rushing because you’ve committed elsewhere. Or you’re downsizing and don’t want the stress of moving twice.
Bridging finance is one way to handle that timing gap. It lets you buy the new place while the old place is still being sold, and pay it back once the sale settles. This article walks through what bridging finance actually is, how it works in Australia, what to think about before going down that path, and where the lending part of the conversation fits in.
What is bridging finance?
A bridging loan is a short-term home loan designed to cover the gap between buying a new property and selling your current one. The “bridge” is the period of time when you own both properties.
Most bridging loans run for six to twelve months, although some lenders allow up to twenty-four months. Once your old property settles, the sale proceeds pay down most of the debt, and what’s left becomes a normal home loan on the new property.
Bridging finance comes in two flavours: “closed” and “open.” A closed bridging loan is when your old property is already sold and you have a confirmed settlement date. An open bridging loan is when the old property hasn’t sold yet. Closed is less risky for the lender, so the rates and conditions are usually better.
How bridging finance works in Australia
The structure of a bridging loan is different to a normal home loan. There are a few moving parts, but they make sense once you see them in action.
A worked example
Let’s say John and Mary own a home worth $700,000 with $200,000 still owing on the mortgage. So they have $500,000 in equity. They’ve found a new home for $900,000 and want to buy it before selling their current place.
A bridging loan covers the new $900,000 purchase. For a short period, John and Mary technically owe what’s called “peak debt”. That’s the highest amount they owe across both properties combined: their existing $200,000 mortgage, plus the $900,000 for the new home, plus stamp duty and costs. Roughly $1.15 million on paper while both properties overlap.
That number looks alarming, and it is the part that surprises most people. But it’s short-term. When their old home sells for $700,000, that money goes straight to paying down the bridging loan. What’s left over (around $400,000 in this example) becomes their new home loan on the $900,000 property. From that point on it’s just a normal home loan.
That’s the basic shape of every bridging loan. The numbers change. The structure doesn’t.
What happens to the interest
On a normal home loan, you make monthly repayments. On a bridging loan, most lenders let you “capitalise” the interest during the bridge period. That means instead of making monthly repayments on the bridging amount, the interest gets added onto the loan balance.
For John and Mary, this means they don’t need to find money for two sets of mortgage repayments while their old home is on the market. The bridging interest just rolls into the peak debt and gets paid off when the old home sells.
It’s a useful feature, but it isn’t free. The interest is still being charged, it’s just being added to the loan rather than paid each month. The longer the bridge runs, the more interest gets added. This is why bridging is a short-term tool, not a long-term one.
How much you can borrow
Bridging loans are more cautious than standard home loans. Most lenders cap the peak debt at around 80% of the combined value of both properties. In practice, this means you usually need a meaningful amount of equity in your existing home before bridging is on the table.
Lenders also expect to see a clear plan for selling the old property: a real estate agent appointment, an indicative sale price, and ideally evidence the property is on the market. The clearer the exit, the smoother the application.
What lenders look at
When you apply for a bridging loan, the lender will look at:
- Your equity in the existing property
- An independent valuation of both properties
- Your income and ability to service the new loan once the bridge is over
- Your plan for selling the old property
- Whether the bridge is “open” or “closed” (closed is preferred)
Things to consider before taking out a bridging loan
Bridging is useful, but it’s a higher-risk loan than a standard home loan. Things worth thinking about:
- Your old home might not sell as quickly as you hope. Sale timelines depend on the market, the property, and the price. If the bridge runs longer than expected, the interest keeps adding up. Worth thinking about what happens if the sale takes three months longer than planned.
- It might not sell for what you expect. The bridging plan is built around the sale price you’re assuming. If the property sells for less, the leftover loan on the new home is bigger. It’s worth budgeting on the conservative side rather than the optimistic side.
- Bridging rates are usually higher than standard home loans. Some lenders use the same rate as their standard variable, but many charge a margin on top. Specialist or non-bank lenders can charge significantly more. The shorter the bridge, the less the rate matters. The longer it runs, the more it bites.
- Setup costs aren’t small. There are usually two valuation fees (one for each property), application fees, and stamp duty on the new purchase. These all need to be factored into the peak debt figure.
- Open bridging is harder to get than closed bridging. If your old home isn’t sold yet, lenders ask more questions and may charge a higher rate. The strongest application is one where the sale is already under contract.
- There are alternatives worth knowing about. A deposit bond, a longer settlement on the new purchase, or selling first and renting for a few months can sometimes solve the same problem with less debt and less risk. Bridging is one option among several.
- An emergency buffer matters. Bridging adds short-term financial pressure on top of the costs of moving. Having an emergency fund (or access to redraw) for unexpected expenses is sensible.
A good bridging conversation includes a frank look at all of these. If a broker is selling you on the convenience of buying first without working through the peak debt, the timeline, and what happens if the sale takes longer, that’s a red flag.
When bridging finance makes sense
Bridging tends to be worth looking into when:
- You’ve found the new property and don’t want to lose it while you wait to sell
- You’re already under contract to sell, but settlement on the new purchase comes first
- You’re downsizing and want to avoid the stress of moving twice
- You have strong equity in the existing home and a realistic sale price
- You can afford the new home loan on its own once the bridge is paid off
It tends to be the wrong move when:
- The sale price you’re assuming is optimistic rather than realistic
- You don’t have a clear plan or timeline for selling the old property
- The new home loan would be a stretch even after the old property sells
- Selling first and renting for three months would solve the same problem with much less risk
- You don’t have a buffer for setup costs, moving costs, or unexpected delays
The right answer depends on the full picture. Your existing home, your equity, your income, the new property, and the realistic sale timeline all play a part.
How Equity Cube can help
If you’re thinking about buying before you sell and wondering whether bridging finance fits your situation, the next step is usually a proper look at your equity, your sale prospects, and what’s available across the market.
That’s the kind of conversation we have at Equity Cube. We compare options across our lending panel, walk you through the peak debt and timing in plain language, and look at whether bridging is the right tool or whether something simpler would do the job. If bridging isn’t the right move for your situation, we’ll tell you that too.