You have found the next home, but you have not sold your current one yet. Waiting can mean missing out. Selling first can mean renting in between. A bridging loan lets you buy first and sell later, without needing two full mortgages at once.

How a bridging loan works

A bridging loan combines your existing home loan and the loan for your new property into one temporary facility, secured by both properties. When your old home sells, the sale proceeds pay down the bridging part and you are left with a standard home loan on the new place.

Two terms you will hear:

• Peak debt: the total you owe while you hold both properties. It equals your current loan plus the new purchase price and costs.
• End debt: what you will owe once your old home sells. Lenders assess whether you can afford the end debt, not the peak debt.

A simple example

You owe $300,000 on a home worth $900,000. You buy a new home for $1,200,000 with about $60,000 in costs. Your peak debt is around $1,560,000. When the old home sells for $900,000, minus around $25,000 in selling costs, your end debt is about $685,000.

How interest is handled

With most bridging loans, you keep making repayments on the end debt, while interest on the bridging portion is capitalised. That means it is added to the loan balance and paid off when you sell. This keeps cash flow manageable, but the interest still adds up, so a quick sale matters.

How long do you have to sell?

Lenders usually allow around 6 months to sell an established home, and up to 12 months if you are building. If the property has not sold by then, the lender may increase the rate, require full repayments or ask you to sell at a lower price. Price your old home realistically from the start.

What it costs

• Interest on the full peak debt for the bridging period, usually at a variable rate
• Valuation fees for both properties
• Application and settlement fees
• Possibly lenders mortgage insurance if peak debt is above 80% of the combined property values

Is bridging finance right for you?

It suits you if:

• You have significant equity in your current home
• Your home is in an area where homes sell reliably
• You have found a property you do not want to lose
• You want to avoid moving twice

It is riskier if the market is slowing, your property is unusual or hard to value, or your end debt would stretch your budget.

Alternatives to a bridging loan

• Sell first and negotiate a long settlement or rent back from the buyer.
• Buy with a long settlement to give yourself time to sell.
• Use equity for the deposit and keep the old home as an investment, if you can service both loans.
• Make your purchase subject to sale, though sellers often prefer unconditional offers.

Talk through your move

Not every lender offers bridging finance, and their rules differ widely. Learn more about bridging loans with Propple or book a free call to work out your peak and end debt.

This article is general information only and does not take into account your objectives, financial situation or needs. Government schemes, tax rules and lender policies change, so check current details before acting. Propple Pty Ltd is an Australian Credit Representative (537767) of AFSL 384704.