What Is a Bridging Loan? How to Buy a New Home Before Selling

How Do Bridging Loans Work?

A bridging loan provides funds to purchase a new property now while giving you time to sell your current home later, typically within 6 to 12 months. During this transition, you'll effectively have two properties under one loan structure: your current home and the new one you're buying.

This is how the process typically works:

1. Peak Debt Is Calculated

Your lender calculates your peak debt, the total amount you'll owe during the bridging period. This includes:

• The outstanding mortgage on your existing property
• The purchase price of your new home
• Additional costs like stamp duty, fees, and legal expenses

Example:
Existing mortgage: $300,000
New home purchase: $900,000
Peak debt = $1,200,000

To better understand how the total peak debt is structured, let's break down the components that make up this amount.

As shown in the chart, the majority of the peak debt comes from the purchase of the new property, with the remaining balance split between the existing mortgage and selling costs.

2. Interest-Only Payments (Usually)

Most bridging loans in Australia are interest-only during the bridging period. This keeps your repayments lower while you're holding both properties. Some lenders offer capitalised interest bridging loans, where repayments are deferred, but this can add thousands to your loan. For instance, on a $1.2M peak debt, 6 months of capitalised interest at 6.5% could increase your loan by $39,000.

3. Selling Your Existing Property

You'll have a set timeframe, usually 6 months (or up to 12 for construction) to sell your existing property. Once sold, the proceeds go directly toward paying down your peak debt.

4. Remaining Loan Becomes Your New Mortgage

After the sale, the leftover balance becomes your new standard home loan on the new property, with regular principal-and-interest repayments.

Bridging finance is structured to help you move without pressure, but it's crucial to understand how the debt is calculated and how sale delays could impact your final loan.

Case Study of How Bridging Loans Help Buyers Move Quickly

Let's break down a realistic example of how a bridging loan might work for a homebuyer in Australia.

Scenario: Upgrading to a New Home

• Current home value: $850,000
• Outstanding mortgage: $250,000
• New home purchase price: $1,100,000
• Estimated selling costs: $25,000 (agent fees, marketing, legal)

Step 1: Calculating Peak Debt

To work out the peak debt, we add:

• Existing loan: $250,000
• New home price: $1,100,000
• Selling costs: $25,000

Peak debt = $1,375,000

Step 2: Bridging Period

During the bridging period (say 6 months), the buyer typically makes interest-only repayments on the $1.375M. Some lenders may allow capitalised interest (added to the loan balance), depending on your circumstances and lender policy.

Step 3: Selling the Old Home

Assume the old home sells for $850,000.

The net proceeds after selling costs:

• $850,000 - $25,000 = $825,000

That $825,000 will be applied to reducing your bridging loan.

Step 4: Final Loan

Remaining loan after sale:

• $1,375,000 - $825,000 = $550,000

This becomes your ongoing home loan on the new property, now under a standard loan agreement with regular repayments.

This example highlights the importance of:

• Having substantial equity in your current home
• Understanding your peak debt
• Planning for different sale outcomes

At Stryve Finance, we run these numbers with you using real figures to ensure a bridging loan is the right fit.

Pros and Cons of Bridging Loans

Like any financial product, a bridging loan has both advantages and potential downsides. Understanding these can help you decide if bridging finance is the right strategy for your next move.

Bridging loans offer significant flexibility but also carry potential risks. Let's review the key pros and cons of using bridging finance.

While bridging loans can offer valuable benefits, it's important to weigh them against potential downsides. Carefully considering these factors will help you decide if bridging finance is the right choice for your situation.

Tip: Before you commit to bridging finance, we'll help you weigh the real costs and risks and compare it with other home loan options to make sure it's the right fit.

Are Bridging Loans a Good Idea?

The short answer? A bridging loan can be a smart move, but only when it's used in the right situation with a clear strategy.

Bridging finance offers flexibility, convenience, and the ability to buy before selling. But it also carries risks if your property doesn't sell as expected or if your financial buffer is tight.

Here's when a bridging loan is usually a good idea:

When Bridging Loans Make Sense

• You have substantial equity in your current home (typically 50% or more).
• You're confident your property will sell within the bridging period.
• You're in a strong seller's market (homes move quickly).
• You're downsizing, and the new property is cheaper than your current one.
• You're relocating or building and don't want to rent in between.

And when they might not be ideal:

When You Should Be Cautious

• Your current home is in a slow or uncertain market.
• You're already highly leveraged or have a tight borrowing capacity.
• You can't afford repayments if your home takes longer to sell.
• You're not working with a broker to help structure the loan properly.

At Stryve Finance, we assess your entire position, not just your loan application. We'll help you run the numbers, forecast different sales timelines, and build a safe exit strategy that avoids surprises.

So while bridging loans can be a great idea, they're not one-size-fits-all. With expert advice and the right lender, they can give you the freedom to make your next move, on your terms.

Read also: Top 5 Risks of Bridging Loans (And How to Avoid Them)

Who Is Eligible for a Bridging Loan and What Do Lenders Require?

Getting approved for a bridging loan in Australia isn't quite the same as applying for a standard home loan. Lenders look at your full financial picture, not just your ability to buy, but your plan to sell.

Here's what most lenders require before approving bridging finance:

Key Bridging Loan Criteria

1. Sufficient equity in your current property

Lenders usually require at least 20% equity remaining after your new purchase and the sale of your old home. The more equity you have, the easier it is to qualify.

2. A realistic sale plan or contract of sale

A signed contract of sale is ideal (closed bridging loan), but some lenders will accept a solid plan to sell (open bridging loan), especially if the property is listed and market-ready.

3. Strong serviceability

You'll need to demonstrate you can afford the interest payments on your peak debt during the bridging period. Even if the interest is capitalised, banks assess your ability to repay the final loan amount.

4. Acceptable loan-to-value ratio (LVR)

Most lenders cap the LVR at 80%, sometimes lower for bridging finance. If you're borrowing above this, Lenders Mortgage Insurance (LMI) may apply.

5. Both properties are used as security

Lenders will generally require both your existing and new properties to be held as collateral during the bridging period.

Bridging Loan Lenders in Australia

Not all lenders offer bridging loans, and those who do vary in:

• Repayment structures (interest-only vs capitalised)
• Maximum bridging period (6-12 months)
• Exit strategy requirements
• Application process speed

Some non-bank lenders also offer more flexible terms than major banks, ideal for buyers with unusual timelines or properties under construction.

Alternatives to Bridging Loans

A bridging loan isn't the only way to buy before selling, and depending on your financial situation or risk tolerance, it might not be the best fit.

Here are a few smart alternatives to consider:

1. Longer Settlement Periods

Negotiate a long settlement (e.g. 90-120 days) on the new property, giving yourself more time to sell your current home. This can work well in balanced markets or with flexible vendors.

Best for: buyers who need time, but don't want a second loan.

2. Subject-to-Sale Contracts

Include a “subject to sale” clause in your purchase contract. This means the deal only proceeds if you sell your existing home. It reduces financial risk, but may make your offer less attractive in a competitive market.

Best for: buyers in slower markets where vendors are open to conditions.

3. Rent Temporarily

Sell your current home first, then rent short-term while you search for or settle on your new property. This gives you cash in hand, but adds moving costs and inconvenience.

Best for: those with flexible timelines or uncertain purchase plans.

4. Home Loan with Deposit Bond

If you've sold your property but haven't yet received the funds (e.g., settlement is weeks away), a deposit bond can help secure a new property while you wait. This isn't a full bridging loan, but it solves a similar timing issue.

At Stryve Finance, we help you explore all home loan options, including bridging loans and these alternatives so that you can make a fully informed decision with confidence.

How a Mortgage Broker Like Stryve Finance Can Help

Navigating bridging finance can be complex, especially when you're dealing with two properties, tight timelines, and lenders with different rules.

That's where a mortgage broker like Stryve Finance can make all the difference. Here's how we help:

• We assess your complete financial picture: We don't just look at your borrowing capacity, we consider your equity, cash flow, sale timeline, and risk tolerance to determine if a bridging loan is suitable for you.
• We compare multiple lenders: Not all lenders offer bridging finance, and their policies vary widely. We search across a broad panel of banks and non-bank lenders to find the best structure and rate for your needs.
• We simplify the process: From calculating your peak debt to preparing your loan application, we handle the details, so you can focus on buying and selling with confidence.
• We coordinate your timeline: We work with your real estate agent, solicitor, and lender to align your settlements, reducing stress and helping you avoid costly delays.
• We plan your exit strategy: We help you build a “what if” plan in case your home takes longer to sell, so you're never caught out with repayments or rollover issues.

At Stryve Finance, we act in your best interest, not the bank's. Whether you're a first-time upgrader, downsizer, or relocating for a new chapter, our expert team is here to guide you through every step of your home loan journey.

Frequently Asked Questions About Bridging Loans

How long does a bridging loan last?

Most bridging loans in Australia have a term of 6 months, with some lenders offering up to 12 months, especially for construction or more complex situations. It's essential to have a plan to sell your current property within this period.

Do all lenders offer bridging loans?

No. Some major banks have strict conditions, and others don't offer bridging finance at all. That's why working with a mortgage broker like Stryve Finance is crucial, we help you find lenders who specialise in bridging loans and are more flexible.

What happens if I don't sell my home in time?

If your home doesn't sell before the bridging loan term ends, you may need to:

• Request an extension from your lender
• Refinance the debt into a different loan
• Make larger repayments to cover the shortfall

That's why having an exit strategy is critical and something we help you build from the start.

Do I have to make repayments during the bridging period?

Most lenders allow interest-only repayments during the bridging period. Some even capitalise the interest, meaning no repayments are made until the sale, but this increases your total loan. Your exact repayment structure depends on your lender and borrowing profile.

Can I get a bridging loan to build a home?

Yes, some lenders offer bridging construction loans, allowing you to build a new home before selling your current one. These loans are more complex, but definitely possible with the right lender.