A bridging loan is a short-term financing arrangement that allows you to purchase a new property before you have sold your existing one. It 'bridges' the gap between buying and selling — covering two properties simultaneously until your current property is sold and the proceeds are used to reduce the loan. Bridging finance is commonly used by owner-occupiers upgrading or downsizing who find their next property before their current home has settled.
How Bridging Loans Work in Australia
A bridging loan involves two phases. During the bridging period (typically 6–12 months), you effectively hold two properties. The lender provides enough finance to cover: your existing mortgage (if any) on the property being sold, plus the purchase price and costs of the new property.
The total amount borrowed during the bridging period is called the 'peak debt' — the maximum combined exposure. Interest is usually capitalised (added to the loan) during the bridging period, meaning you do not make interest repayments on the bridging component while waiting for your existing property to sell.
Once your existing property sells, the sale proceeds are used to reduce the peak debt. The remaining balance converts to a standard home loan (the 'end debt'), which you repay through normal principal and interest or interest-only repayments.
Example: Your current home is worth $800,000 with a $200,000 mortgage. You want to buy a new property for $1,000,000. Peak debt: existing mortgage $200,000 + new purchase $1,000,000 + purchase costs $45,000 = $1,245,000. When your current home sells for $800,000 (less selling costs of $25,000), net proceeds of $775,000 reduce the debt. End debt: $1,245,000 − $775,000 = $470,000.
Peak Debt vs End Debt
Lenders assess both your peak debt (total exposure during the bridging period) and your end debt (what remains after your property sells). Your end debt must be serviceable based on your income — the lender needs to be confident you can afford the long-term repayments. The peak debt is assessed on the basis that it is temporary.
Bridging Loan Costs, Rates, and Maximum Periods
Bridging loan interest rates are typically the same as or slightly higher than standard variable home loan rates — approximately 6.5–8.0% in early 2026. However, because interest capitalises during the bridging period, the total interest cost can be substantial.
On a peak debt of $1,245,000 over a six-month bridging period at 7.0%, capitalised interest would be approximately $43,000. If the existing property takes 12 months to sell, capitalised interest doubles to approximately $87,000. This is why minimising the bridging period is critical.
Maximum bridging periods vary by lender — typically 6 to 12 months. Some lenders require your existing property to be listed for sale before approving the bridging loan; others allow a short period before listing. If your property does not sell within the maximum bridging period, the lender may require you to refinance, extend (at their discretion), or sell at a reduced price.
Additional costs include: application or establishment fees ($500–$1,000), valuation fees for both properties ($300–$600 each), legal and conveyancing fees for the purchase, and potentially LMI if the end debt LVR exceeds 80%.
What If Your Property Does Not Sell?
The biggest risk with bridging finance is your existing property not selling within the bridging period — or selling for less than expected. If the property sells below the expected price, your end debt will be higher than planned. If it does not sell at all, you may be forced to accept a lower price or face the lender taking action. Always have a realistic sale price estimate and a backup plan.
Alternatives to Bridging Finance in Australia
Sell first, then buy: The most conservative approach. You sell your existing property, rent temporarily, then buy your next home. This avoids the cost and risk of bridging entirely — but involves two moves and the uncertainty of finding a new property while renting.
Extended settlement: Negotiate a longer settlement period (90–120 days) on your purchase, giving you time to sell your existing property before the purchase settles. If you can also negotiate a shorter settlement on your sale, the two can overlap — eliminating the need for bridging.
Subject-to-sale clause: Make your purchase offer subject to the sale of your existing property. This protects you from being committed to two properties simultaneously — but vendors in strong markets may reject conditional offers in favour of unconditional buyers.
Equity release or top-up: If you have substantial equity in your current property, you may be able to draw on this equity as a deposit for the new property, then sell your current property at your convenience. This is not technically bridging finance but achieves a similar outcome with a standard loan product.
- ✓Sell first, then buy — avoids bridging costs entirely
- ✓Extended settlement — negotiate 90–120 day settlement
- ✓Subject-to-sale clause — conditional purchase offer
- ✓Equity release — use existing equity as deposit for new property
- ✓Simultaneous settlement — coordinate both settlements on the same day
Frequently Asked Questions
About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.