Buying & Selling
Bridging Loans: Buying Your Next Home Before Selling the Current One
Found your next home but haven't sold yet? Here's how bridging loans work, what they cost, the risks to plan for, and the alternatives worth considering.
It happens all the time. You start looking casually, then you find a home that's perfect for your family. The only problem is that you haven't sold your current home yet.
Do you sell first and risk having nowhere to live? Or buy first and risk owning two properties? A bridging loan is one way to solve this problem. This guide explains how bridging loans work, what they cost, and how to decide if one is right for you.
What is a bridging loan?
A bridging loan is a short-term loan that helps you buy a new home before you've sold your existing one. It "bridges" the gap between the two transactions.
Bridging loans are usually designed to last 6 to 12 months. During that time, you sell your current home and use the proceeds to pay down the bridging loan.
How bridging loans work
The lender looks at both properties together:
- Your existing home, the one you're selling
- Your new home, the one you're buying
They add up your current loan, the cost of the new home, and purchase costs. This is called the peak debt, the highest amount you'll owe while you own both properties.
Then they estimate what's left after your existing home sells. This is called the end debt, the loan you'll keep long term.
A simple example
| Item | Amount |
|---|---|
| Current home value | $1,200,000 |
| Current loan | $400,000 |
| New home price | $1,500,000 |
| Purchase costs (stamp duty, fees) | $90,000 |
| Peak debt | $1,990,000 |
| Expected sale proceeds (after costs) | $1,170,000 |
| End debt | $820,000 |
Lenders mainly assess whether you can afford the end debt. During the bridging period, you may only need to make repayments on the end debt, with interest on the bridging portion often added to the loan.
Interest during the bridging period
There are two common ways lenders handle interest:
Capitalised interest
The interest on the bridging portion is added to the loan balance instead of being paid monthly. This keeps your repayments manageable, but it increases the total amount you owe.
Paying interest as you go
You make interest payments on the full peak debt. This keeps the total lower, but your repayments during the bridging period will be much higher.
Each lender is different, so it's worth comparing how they handle this.
How long do you have to sell?
Most lenders give you:
- 6 months if you're buying an established home
- Up to 12 months if you're building a new home
If your home hasn't sold by the end of that period, the lender may increase the interest rate, ask you to reduce the asking price, or in some cases require the property to be sold. That's why it's important to be realistic about your sale price and timeframe.
The risks of bridging finance
Bridging loans can be very useful, but they come with real risks:
- The market can change. If prices drop, you may sell for less than expected, leaving a larger end debt.
- It may take longer to sell. Interest keeps adding up every month.
- Costs add up. Interest, fees and two sets of property costs can be significant.
- Stress. Owning two properties with a deadline to sell can be stressful.
A good rule is to plan for a lower sale price than you hope for. If the numbers still work, you're in a stronger position.
Alternatives to bridging loans
Before committing to a bridging loan, it's worth considering other options.
Sell first, then buy
The safest option is often to sell first. You'll know exactly how much you have to spend. The downside is you may need to rent or move twice.
Negotiate a long settlement
When you sell, ask for a long settlement, such as 90 to 120 days. That gives you time to find your next home.
Negotiate a delayed settlement on the purchase
When buying, you can ask for a longer settlement to give you time to sell. This may work in a slower market, but not every seller will agree.
Use equity as a deposit
If you have strong equity, you may be able to use it to pay the deposit on your new home while you sell. This can be simpler than a full bridging loan.
Buy subject to sale
You can make your offer conditional on selling your current home. Sellers often don't like this in a competitive market, but it can work in the right circumstances.
Bridging finance when building
If you're building a new home while living in your current one, a bridging loan can cover the period until the build is finished and you sell. This usually involves combining a bridging loan with a construction loan. It's more complex, but very achievable with the right lender.
Questions to ask before you commit
- How long will my current home realistically take to sell?
- What's a conservative sale price?
- Can I afford the end debt comfortably?
- How will interest be charged during the bridging period?
- What happens if I don't sell in time?
- Are there any fees for early repayment?
How Ridge Finance helps
Bridging finance is a specialist area, and lender policies vary a lot. Our team can help you:
- Work out your peak debt and end debt
- Compare bridging options from different lenders
- Plan for different sale outcomes
- Consider whether an alternative might suit you better
- Coordinate the purchase, sale and settlement
We help families moving within Melbourne's south-east, such as upgrading in Mount Waverley or Bentleigh, as well as clients across Australia.
Learn more about our bridging loans, or book a free chat to work through the numbers before you make an offer.