Buying a new home while waiting for your existing property to sell can be challenging. Do you sell first and risk missing out on your ideal home, or do you buy first and risk being financially stretched? This is where bridging loans come in—a short-term financing option designed to bridge the gap between buying and selling.

If you’re looking to move without the hassle of perfect timing, a bridging loan might be the financial tool you need. This guide explains how bridging loans work, their benefits and risks, and whether they’re the right choice for your property journey.

What Is a Bridging Loan?

A bridging loan is a short-term loan that allows Australian property owners to buy a new property before selling their existing one. It provides temporary financing to cover the upfront cost of the new home while you wait for your current house to sell.

These bridging loans typically have a 6 to 12-month loan term, during which the borrower either sells their existing property or arranges long-term financing to pay off the bridging loan.

Bridging loans are useful for:

• Homeowners looking to upgrade or downsize
• People building a new home while still living in their current one
• Buyers who have found their dream house but haven’t sold their existing property
• 
  

How Do Bridging Loans Work?

Bridging loans work differently from standard home loans. Here’s a simplified step-by-step breakdown:

1. Loan Approval: The lender assesses your ability to repay the loan and considers the equity in your current home.
2. Peak Debt Calculation: This includes the mortgage on your existing property, the extra cost of the new property, and additional costs (e.g., stamp duty, legal fees).
3. Interest Payments: Most lenders offer capitalised interest, meaning the interest is added to your loan balance rather than being paid monthly.
4. Sale of Your Existing Property: Once sold, the proceeds go toward reducing the loan.
5. End Debt: The remaining balance after the sale becomes your new mortgage.

Example Scenario

Imagine you own a home worth $500,000 with a remaining mortgage of $200,000. You want to buy a new home for $700,000, and you take out a bridging loan. For simplicity, we will exclude costs.

• Peak Debt: $200,000 (existing mortgage) + $700,000 (new home) + $50,000 (capitalised interest) = $950,000
• You sell your old home for $500,000 → Proceeds reduce your loan
• End Debt: $950,000 - $500,000 = $450,000 (which becomes your new mortgage)

During the bridging period, you only pay interest on the full loan balance until your home is sold and this is generally capitalised into the loan.

Benefits of a Bridging Loan

Bridging loans offer a couple of advantages for homeowners looking to move without financial constraints.

1. Flexibility in Buying and Selling

One of the biggest advantages of a bridging loan is the ability to buy a new home before selling your existing one. This is particularly beneficial in a competitive market, where waiting to sell first could mean losing out on your desired property.

2. No Pressure to Sell Below Market Value

If you’re in a rush to sell your home to finance a new purchase, you might accept a lower offer. A bridging loan gives you more time to find the right buyer, allowing you to sell at the best possible price.

3. Avoiding Temporary Accommodation and Moving Twice

Selling first and then buying often means renting in the meantime, moving twice, and dealing with storage costs. With a bridging loan, you can move directly into your new home, avoiding additional expenses and inconvenience.

4. Potential for Financial Gain

If property values are rising, a bridging loan allows you to lock in your new home at today’s prices. Meanwhile, your existing home may increase in value before you sell, potentially leading to greater profit.

5. Interest Capitalisation

Some lenders allow you to capitalise the interest, meaning you don’t have to make repayments during the bridging period. The interest is instead added to your loan balance and paid off when your home sells.

Risks and Considerations of Bridging Loans

While bridging loans provide financial flexibility, they also come with risks that must be carefully evaluated.

1. Higher Interest Rates

Bridging loans often come with higher interest rates than traditional mortgages. Interest is usually calculated daily and can add up quickly, especially if your home takes longer than expected to sell.

2. Risk of Property Market Changes

If property prices drop while you’re holding two homes, you may sell for less than expected. This could leave you with a larger remaining debt than planned.

3. Time Constraints

Most lenders require the loan to be repaid within 6 to 12 months. You could face penalties or financial strain if you struggle to sell your property within this timeframe. The lender could also force you to sell at the end of the bridging period which may be less than you expected.

4. Eligibility Requirements

Not everyone qualifies for a bridging loan. Lenders assess factors such as:

• Your credit score and financial history
• Your income stability
• The equity in your existing home
• The marketability of your property

5. Managing Two Loans at Once

During the bridging period, you could be responsible for repayments on two properties. Even if interest is capitalised, the loan amount increases, and once the sale is complete, you’ll need to service a potentially larger mortgage.

Alternatives to Bridging Loans

If a bridging loan seems risky, consider these alternatives:

• Selling first, then buying – This avoids financial overlap but may require temporary housing.
• Negotiating extended settlement periods – Allows more time to align buying and selling.
• Rent-back agreements – Sell your home and rent it back from the new owner until you’re ready to move.
• Using a home equity loan – If you have significant equity, you may be able to borrow against it instead of taking out a bridging loan.

When to Consider a Bridging Loan

Bridging loans aren’t for everyone, but they can be useful in these situations:



• You’ve found your dream home and need to act quickly.
• Your current home has strong market demand, making a fast sale likely.
• You have substantial equity in your existing property to reduce financial risk.
• You’re confident you can sell within the loan period.

If you’re unsure, consulting a mortgage broker or financial advisor can help determine if a bridging loan is right for your circumstances.

Ready to Purchase Your Home?

At Synergy Mortgage Brokers, we specialise in helping homeowners secure bridging finance solutions that align with their financial goals. Whether you're upgrading, downsizing, or building a new home, our team provides expert advice to help you make informed decisions.

Get in touch.