Bridging loans Bridging loans: buy before you sell
Found the next home before you’ve sold this one? A bridging loan covers the gap: you buy now, then pay the loan down when your current home sells. It suits people moving up or moving on, as long as the numbers still work if the sale price comes in lower.
Key takeaways
- A bridging loan lets you buy before you sell. The lender takes security over both homes until the sale.
- Lenders look at peak debt against both homes together, often up to about 80%, and at the loan left once you’ve sold.
- In the example below, interest added over six months is about $66,879.
- Test a lower sale price before you commit. At 10% less, the loan left after the sale rises by about $117,000.
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During the bridge
- Peak debt
- $1,822,666
- Of both homes
- 72.9%
After the sale
- Loan left
- $652,666
- Of the new home
- 50.2%
Illustrative. Home worth $1.2 million with $400,000 owing, sold for $1.2 million less 2.5% selling costs. New home $1.3 million in NSW with $52,787 stamp duty and $3,000 other costs. Example rates 7.5% on the bridge, interest added, and 5.9% after, 30 years. Not a quote or an offer.
How does a bridging loan work?
The lender lends you enough to buy the new home on top of your existing loan, and takes security over both properties. Until your current home sells, you owe the combined amount: the peak debt.
When the sale settles, the proceeds pay down the loan, and what’s left becomes an ordinary home loan on your new home. During the bridge, many lenders add the interest to the loan instead of asking for repayments.
What lenders check
- Peak debt against both homes. Often up to about 80% of their combined value, though limits vary by lender.
- The end loan. What’s left after the sale, against the new home, and whether your income supports it.
- The sale. A realistic price, often backed by an agent’s appraisal or a valuation.
- The time. How long the sale is likely to take, against the bridging term.
What a bridging loan costs
In the example, peak debt is $1,822,666, 72.9% of the two homes together, and six months of interest added to the loan is about $66,879. That comes off what you’re left with after the sale.
Then there are the usual costs: stamp duty on the new home, lender and valuation fees, and selling costs on the old one. A longer sale means more interest.
What if the sale price is lower?
| Sale price | Loan left | Repayments |
|---|---|---|
| As expected | $652,666 | $3,871/mo |
| 5% lower | $711,166 | $4,218/mo |
| 10% lower | $769,666 | $4,565/mo |
Same example, 5.9% over 30 years after the sale. Illustrative only.
Who a bridging loan suits
- You have strong equity in your current home.
- Your income supports the loan that’s left after the sale.
- You’ve found the right home, and losing it would cost more than the bridge.
- Your home is likely to sell within the bridging term.
When selling first is the better answer
- Your equity is thin, so peak debt would sit close to the lender’s limit.
- The loan left after the sale would be a stretch on your income.
- Your home may take a long time to sell, or its price is hard to predict.
- You’d rather rent for a few months than carry two properties.
The full comparison is in bridging loan vs selling first.
FAQ Questions clients ask
How does a bridging loan work?
A bridging loan lets you buy your next home before you’ve sold your current one. The lender takes security over both homes, lends for the new purchase on top of your existing loan, and you pay down the combined debt when your old home sells. During the bridge, interest is often added to the loan.
How long does a bridging loan last?
Often up to six months to sell an established home, and up to about 12 months if you’re building. Lenders set their own terms. If the sale takes longer, the cost rises and the lender may ask for a plan.
What is peak debt?
Peak debt is the most you owe during the bridge: your existing loan, plus the new purchase and its costs, minus any cash you put in, plus interest added along the way. Lenders measure it against the value of both homes together.
Do I make repayments during a bridging loan?
Often you don’t, on the bridging part. Many lenders add the interest to the loan until your old home sells, so your repayments stay manageable. The catch is that the interest is still charged, and it comes off what’s left after the sale.
What happens if my home sells for less than I expected?
More of the bridge stays on your new loan. In the example on this page, a sale 10% lower would leave about $117,000 more to repay. That’s why I test a lower sale price before you commit.
Is a bridging loan more expensive than selling first?
Usually, in interest. Selling first can cost rent, two moves and storage instead, and the risk of not finding the right home in time. Which costs less depends on your timeline and your market. Bridging loan vs selling first sets out both.
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