Found your dream home, but haven’t sold your current property yet? This is where a bridging loan could come in handy.
A bridging loan provides short-term finance to bridge the gap, giving you the flexibility to buy now and sell later without rushing. It can also provide breathing room to make sure you get a good price for your existing property.
The ‘buy first vs. sell first’ dilemma
When moving, lining up settlement dates for two properties simultaneously is tricky.
If you sell first and house prices rise quickly, the money you get from your sale might not go as far as you hoped for your next purchase. On the flip side, if you buy first and your old home takes longer to sell than expected, you could be stuck paying higher interest for an extended period.
The answer to the ‘should I buy or sell first’ question is not black and white. There are pros and cons either way:
Buy your new home first | Sell your existing property first | |
Pros |
|
|
Cons |
|
|
Bridging loans can give you the freedom to buy your new home before selling your current one. By using the equity in your existing property as security, you can move into your next home sooner without feeling rushed to sell. These loans typically last up to 12 months.
Peak debt vs. end debt
When you are considering a bridging loan, two important terms you will hear are ‘peak debt’ and ‘end debt’. Lenders will assess your ability to manage both your peak debt and your end debt, so it is important to have a clear understanding of what these figures look like for you:
Definition | Example | |
Peak Debt | The highest amount of money you will owe for the loans during the bridging period. It is essentially the sum of your existing home loan balance plus the full purchase price of your new home (minus any cash deposit you put down for the new property). You will usually pay interest only on the bridging loan. | New home purchase total* cost: $900,000 Existing loan balance: $300,000 Peak debt: $1,200,000 *includes upfront purchase costs like stamp duty, transfer fees, and legal/conveyancing costs During the bridging period, you would be making interest-only repayments on the $1,200,000. |
End Debt | The amount of the loan that remains after your existing property has sold and the proceeds from that sale have been used to pay off your existing home loan and toward the bridging loan. This ‘end debt’ then becomes your new, long-term home loan for your new property, which you will typically pay down with principal and interest repayments. | Peak debt: $1,200,000 Existing home sells for: $700,000 End debt: $500,000 This $500,000 then becomes the ongoing home loan for the new property. |
Understanding the costs
In this example, if the interest rate on the bridging loan was 7.5% per annum, the monthly interest-only repayment during the bridging period (on $1,200,000) would be: ($1,200,000 x 0.075) / 12 = $7,500 per month.
If the bridging period lasted for two months, the total interest paid for the bridging loan alone would be: $7,500 x 2 months = $15,000.
What lenders consider for bridging finance
Lenders look at a few key things when assessing a bridging loan application. They want to make sure you are in a strong position to manage the temporary increase in your loan amount and that your end debt is sustainable.
A bridging loan can be a great tool, but it is not for everyone. It is a good idea to consider your financial situation and comfort level with risk.
We can work through the numbers with you and help you understand all the potential outcomes.
How long do I have to sell my home with a bridging loan?
Most standard bridging loans in Australia offer a term of up to 12 months for existing residential homes (or up to 24 months for modern construction projects).
Do I have to make monthly repayments during the bridging period?
It depends on the lender setup. Some lenders require monthly interest payments on the bridging amount, while others allow interest to accrue into the total loan amount, which is settled when your house sells.
What happens if my house does not sell within the bridging term?
If your property does not sell within the agreed period, the lender may request a price reduction on your listing, charge higher interest rates, or work with you to extend the term under revised conditions.
Can I roll stamp duty and purchasing costs into my bridging loan?
Yes. Purchasing costs, including stamp duty, transfer fees and legal charges, are typically factored directly into your peak debt calculation.
