Buying a new property before your current one sells? A bridging loan can make the process smoother, faster, and far less stressful. Bridging loans provide short-term funding to “bridge the gap” between buying and selling, giving you the financial flexibility to secure your next home or investment property without having to rush your sale.
What is a Bridging Loan?
A bridging loan is a short-term loan that covers the financial gap between the purchase of a new property and the sale of an existing one. It allows you to move quickly on a new opportunity, such as buying at auction or securing your dream home, without waiting for your current property to sell.
Bridging loans are typically offered for 3 to 12 months and are repaid once your original property is sold or refinanced. They’re ideal for homeowners, down sizers or investors needing temporary access to funds.
How Does a Bridging Loan Work?
A bridging loan works by giving you access to funds for your new property purchase before the sale of your existing property is finalised. The loan is secured against both properties and is designed to be short-term, typically lasting from a few months up to one year.
This type of financing gives you the flexibility to buy first, sell later, eliminating the stress of trying to time both transactions perfectly.
Bridging Loan Example Scenario
Let’s say you’re purchasing a new home for $900,000 but haven’t yet sold your current property, which is expected to sell for $600,000.
You still owe $200,000 on your current mortgage.
Here’s how a bridging loan would work:
- Purchase Price of New Property: $900,000
- Expected Sale Price of Current Property: $600,000
- Existing Mortgage: $200,000
- Total Bridging Loan Required: $900,000 + $200,000 = $1.1M (Peak Debt)
- Once the old property is sold, proceeds go toward repaying the peak debt.
The remaining balance (if any) is then refinanced into a standard home loan, or cleared completely, depending on your situation.
Bridging Loan Repayments
One of the key benefits of bridging loans is interest capitalisation. This means you typically don’t have to make regular repayments during the loan term. Instead, the interest accrues and is paid off once your existing property is sold.
Here’s what that means for you:
- No stress of double repayments
- Breathing room during the transition period
- Easier cash flow management
Of course, some borrowers may choose to make interest-only repayments to reduce the total amount owed.
Types of Bridging Loans
Bridging loans come in two main forms, closed and open, each designed to suit different timelines and levels of certainty around your property sale. Understanding the difference will help you choose the right option for your situation.
Closed Bridging Loans
A closed bridging loan is used when you already have a confirmed settlement date for the sale of your existing property. Because the repayment date is fixed, lenders see this as lower risk, which often means slightly more favourable terms.
Closed bridging loans are ideal if:
- You’ve already sold your property
- You have a set settlement date
- You need funds now to purchase your next home or investment
This option gives you certainty and clear timelines, perfect for buyers who are already mid-transaction.
Open Bridging Loans
An open bridging loan is used when your existing property is still on the market or hasn’t yet sold. There’s no fixed repayment date, giving you more flexibility, but also requiring a strong exit strategy to satisfy the lender.
Open bridging loans are ideal if:
- Your current property is listed but not yet sold
- You want to purchase first to avoid missing out on your next property
- You’re confident your property will sell within the loan term
Need flexibility while you sell? An open bridging loan offers the breathing room to move forward without the pressure of rushing your sale.
Benefits of Choosing Bridging Loans
Bridging loans are designed to take the pressure off, giving you the financial breathing room to move at your own pace. Here’s how our bridging finance solutions make life easier:
Quick Access to Funds
Timing is everything in property deals. With streamlined approvals and fast turnarounds, our bridging loans give you access to funds in as little as 24 to 48 hours, so you don’t miss out on the perfect home or investment opportunity.
Flexible Loan Terms
No two property journeys are the same. That’s why we tailor your loan term to suit your timeline, whether you need just a few weeks or several months. We’ll work closely with you to structure a solution that aligns with your sale strategy and future plans.
Interest-Only Options
Bridging loans can include interest-only repayment structures, or even capitalised interest, so you’re not hit with double mortgage payments during the transition period. This helps you maintain better cash flow and reduces financial strain while your property is on the market.
No Need for Temporary Accommodation
One of the biggest benefits? You won’t need to move out before your new place is ready. By bridging the gap, you avoid the hassle and cost of short-term rentals, storage fees and multiple moves.
When Should You Consider a Bridging Loan?
Bridging loans are most useful when the timing between buying and selling property doesn’t line up perfectly. Below, we break down two common scenarios, buying before selling and selling before buying, to help you decide if a bridging loan is the right move for your situation.
Buying Before Selling
Buying your next property before selling your current one is a common reason borrowers turn to bridging finance. It allows you to act quickly in a competitive market without being tied to the timeline of your existing home sale.
Advantages:
- Secure your next property without delay: If your dream home hits the market before you’ve sold your current one, a bridging loan lets you act fast.
- Avoid missing out in competitive markets: You can buy with confidence—even before your sale is finalised.
- More control over your sale: With time on your side, you can sell your existing property for the right price, not a rushed one.
Disadvantages:
- Higher financial exposure: You’ll temporarily hold two properties, which means higher peak debt until the original property is sold.
- Requires an exit strategy: You need a clear plan to repay the loan, typically through the sale of your existing property.
Thinking of buying first? We’ll help you understand how bridging finance can support your plans and reduce the pressure of rushed decisions.
Selling Before Buying
Some borrowers prefer to sell first to know exactly what budget they’re working with. While this approach can offer more financial certainty, it also comes with potential drawbacks, especially when there’s a gap between transactions.
Advantages:
- Clearer financial position: You’ll know exactly how much you can spend once your property is sold.
- Lower financial risk: No overlapping mortgages or bridging loan interest to manage.
Disadvantages:
- You may need temporary accommodation: If your next home isn’t ready, you could face moving costs, rental expenses, and added stress.
- Risk of market movement: Property prices could rise while you’re between homes, reducing your buying power.
If you’d rather not deal with the stress of renting between homes, bridging finance may offer a smarter, more seamless alternative.
Eligibility and Requirements for Bridging Loans
While bridging loans offer more flexibility than traditional financing, there are still a few key criteria you’ll need to meet to qualify. At Alpha1 Financial Solutions, we assess each application on its own merits and work to find solutions that fit your unique financial position.
Equity in Your Existing Property
One of the most important eligibility factors is the amount of equity you hold in your current property. Since the loan is typically secured against both your existing and new properties, sufficient equity ensures you can borrow the funds needed without overextending.
If your property is expected to sell for significantly more than what’s owed on your current mortgage, you’re likely in a strong position for a bridging loan.
Proof of Serviceability
Even though bridging loans often involve interest-only or capitalised repayments, lenders still want to see that you can service the loan, either through income, asset sales or refinancing, especially if the property sale is delayed.
We’ll help you prepare simple documentation that shows your ability to manage the loan during the bridging period.
Maximum Loan-to-Value Ratio (LVR)
Most bridging lenders will consider a Loan-to-Value Ratio (LVR) of up to 80%, including the combined value of both the existing and new properties. The LVR helps determine how much you can borrow, and whether interest can be capitalised into the loan.
A lower LVR may give you more flexibility, better terms and an easier approval process.
What Happens After You Sell Your Property?
Once your existing property is sold, the proceeds are used to repay your bridging loan, this includes the principal borrowed, along with any accrued interest if capitalisation was used. Depending on your financial position, you may then:
- Refinance any remaining balance into a traditional home loan
- Clear your debt entirely, if proceeds cover the full loan
- Use surplus funds for renovations, investments or other needs
The transition is usually seamless, especially with Alpha1 Financial Solutions guiding the process. We’ll make sure everything is settled smoothly so you can focus on enjoying your new property stress-free.
Bridging Loans Costs and Considerations
While bridging loans are a powerful solution for property transitions, it’s important to understand the associated costs. Here’s what to keep in mind:
- Interest Rates: Typically higher than standard home loans due to the short-term nature and fast approval. However, rates vary based on equity, property type and lender.
- Loan Terms: Most bridging loans are short-term (3–12 months), and interest may be capitalised, meaning you don’t make repayments during the term, but they’re added to the final balance.
- Fees: Expect some upfront costs like valuation, legal or setup fees. All of these are disclosed transparently during the application process.
Alternatives to Bridging Loans
If a bridging loan isn’t the right fit, there are other ways to manage your property transition:
- Deposit Bonds: Useful when you’ve found a property but haven’t yet accessed funds from your current home.
- Redraw or Offset Accounts: If you have extra funds in your current mortgage, you may be able to tap into those without taking a new loan.
- Short-Term Personal Loans or Caveat Loans: These can provide rapid access to funds for short durations, particularly for smaller gaps in financing.
Not sure which option suits your situation? Talk to our team—we’ll help you explore the best path forward based on your goals and timeframe.
FAQs about Bridging Loans
1. What is a bridging loan used for?
A bridging loan is typically used to finance the purchase of a new property while you’re still selling your current one. It helps cover the gap between buying your next property and receiving the funds from your existing home sale.
2. How does a bridging loan work?
Bridging loans temporarily combine your existing mortgage with the funds needed to buy your new property. Once you sell your current home, the sale proceeds are used to pay down the bridging portion, and the loan then reverts to a standard mortgage if any balance remains.
3. Can I buy a property before selling my current one with a bridging loan?
Yes, that’s the main purpose of a bridging loan. It gives you the flexibility to secure your new home without being forced to sell first, helping you avoid rushed sales and giving you time to achieve a better price for your current property.
4. How long do I have to sell my existing property with a bridging loan?
Most lenders allow a bridging period of up to 6 months for standard residential properties and up to 12 months for new builds or more complex situations. Extensions may be considered depending on your circumstances and lender policies.
5. Do I need a deposit for a bridging loan?
In many cases, you don’t need a cash deposit if you have enough equity in your current property. The equity is used as security to fund the purchase of the new home during the bridging period.
6. Are bridging loans more expensive than regular home loans?
Bridging loans may have slightly higher interest rates and fees compared to standard home loans, but because they are short-term solutions, the overall cost can still be manageable. Some lenders offer competitive rates, especially for borrowers with strong equity positions.
7. Can I make repayments during the bridging period?
You can usually choose between making interest-only payments or capitalising the interest (where interest is added to the loan balance). Many borrowers opt for capitalised interest to minimise cash flow pressure during the bridging period.
8. What happens if I can’t sell my property during the bridging period?
If your property doesn’t sell within the agreed timeframe, the lender may require you to refinance to a different loan product, start full repayments, or consider selling another asset. It’s important to have a backup plan in place when applying.
9. Can investors and up sizers use bridging loans too?
Yes, investors and up sizers can use bridging loans. Bridging loans aren’t limited to owner-occupiers. Investors buying a second property and families upgrading to a larger home often use bridging finance to make a move without the pressure of selling first.
10. Is pre-approval available for bridging loans?
Yes, many lenders offer bridging loan pre-approvals. This can give you confidence to buy before selling, knowing how much you can borrow and what conditions will apply once your existing property is sold.
