In short: A bridging loan funds your new home before your current one is sold. The lender adds your existing mortgage, the new purchase price and costs into a single peak debt, usually capitalises the interest for a bridging period of six to twelve months, and then reduces the loan to the end debt when your sale settles. It works when you have strong equity, a realistic sale price and a plan for the property not selling on time.
Key takeaways
- Peak debt is everything you owe during the bridge: old loan plus new purchase plus costs plus capitalised interest.
- End debt is what remains after the sale proceeds are applied; the lender assesses whether you can service the end debt long term.
- Interest is charged on the full peak debt and usually capitalised, so the balance grows every month until you sell.
- Most lenders allow six months for an established property and up to twelve for a new build; miss the window and the lender can intervene.
- Bridging suits owners with significant equity and a property that will sell readily; it does not suit tight equity or slow markets.
Upgraders in Melbourne's north face a timing problem: the house you want in Greenvale comes up before the house you own in Roxburgh Park is even on the market. Selling first means renting in between; buying first means carrying two properties. Bridging finance is the tool for the second option, and it is a good tool when you understand the three numbers that drive it.
The three numbers
Peak debt
Peak debt is the total the lender funds while you own both properties. For illustration:
| Item | Amount |
|---|---|
| Existing loan on Roxburgh Park home | $350,000 |
| Purchase price of Greenvale home | $900,000 |
| Stamp duty (general rate: $2,870 + 6% of the excess over $130,000) | $49,070 |
| Conveyancing, lender fees and moving (illustrative) | $5,000 |
| Peak debt before interest | $1,304,070 |
The duty figure comes from the Victorian general scale; the owner-occupier concession only applies up to $550,000. Check it with the stamp duty calculator and the State Revenue Office.
Capitalised interest
Bridging lenders generally do not require repayments on the bridging portion. Instead the interest is added to the loan each month. For illustration, at 6.00% p.a. on a $1.3 million peak debt:
| Bridging period | Interest capitalised |
|---|---|
| 6 months | About $39,500 |
| 9 months | About $59,700 |
| 12 months | About $80,200 |
Every month you do not sell costs about $6,500 in this example, and the figure compounds. This is why bridging rewards a fast, well-priced sale and punishes an optimistic one.
End debt
End debt is the loan left after the sale. Suppose the Roxburgh Park home sells for $750,000 with $20,000 of agent and legal costs, six months in:
| Item | Amount |
|---|---|
| Peak debt including six months' interest | $1,343,570 |
| Less net sale proceeds | $730,000 |
| End debt | $613,570 |
The lender assesses serviceability on the end debt, at your rate plus 3 percentage points. For illustration, at 6.00% p.a. over 30 years the repayment on roughly $614,000 is about $3,681 a month, tested at about $4,940. If your income supports that, the bridge is approvable. If the end debt is too high, the lender may decline, ask for a larger deposit or require a lower purchase price. Model your equity first with the equity calculator and repayments with the mortgage repayment calculator.
Open versus closed bridging
- Closed bridging: you have already exchanged contracts on your sale with a known settlement date. The lender knows exactly when the end debt arrives. Easier to approve, sometimes cheaper.
- Open bridging: your property is not yet sold. The lender sets a maximum bridging period, typically six months for an established home and up to twelve for construction, and expects evidence you are actively marketing. Most bridging in practice is open.
Lender requirements
Policies vary, but you can expect:
- Equity: the peak debt usually must sit within about 80% of the combined value of both properties. On $750,000 plus $900,000 of value, that cap is $1,320,000. The example clears it before interest but not after six months of capitalised interest, so a lender that counts the interest would want a little more equity or a slightly cheaper purchase. Lower equity means LMI or a decline.
- Servicing on end debt, and sometimes on the full peak debt for a short bridge.
- A valuation of both properties, with the lender often applying a conservative sale estimate to your existing home.
- A marketing plan: agent appointed, listing timeline, evidence of reasonable pricing.
- A bridging period written into the loan, after which rates can rise or the lender can require the sale.
The Roxburgh Park owner above has the numbers to make it work. An owner with a $550,000 loan on the same home would not. Our bridging loans page explains what we arrange and with whom.
Alternatives to bridging
Sell first, then buy, with a long settlement
Negotiate a 90 to 120 day settlement on your sale and buy inside that window. No bridge, no double interest, but you may be forced into a rushed purchase or a short-term rental. Our settlement process page explains what settlement periods are common.
Subject to sale
Make your offer conditional on selling your existing home. Vendors in a competitive market often refuse, and it is unavailable at auction, but in a private sale it can work. Read our subject to finance clause page for how conditional contracts operate.
Deposit bond
If your cash is tied up in your current home, a deposit bond can stand in for the 10% deposit on the new purchase until settlement. It does not fund the purchase, but it solves the deposit timing problem. See our deposit bonds page.
Simultaneous settlement
Sell and buy with the same settlement date. Common, efficient, and dependent on both chains holding. If either side delays, penalty interest can apply under the contract.
A bridging checklist
- Get a written appraisal from two agents and use the lower figure.
- Calculate peak debt including duty, costs and at least six months of interest.
- Confirm the end debt is serviceable at your rate plus 3 percentage points.
- Check the combined LVR against the lender's cap.
- Have your property ready to list before you bid on the new one, not after.
- Agree the bridging period in writing and know what happens on day one after it expires.
- Plan the fallback: a price reduction, renting the old home, or refinancing the whole position (our refinancing guide explains how).
Moneysmart has a plain-English explainer on bridging finance worth reading before you sign.
Frequently asked questions
Are bridging loan rates higher than normal home loan rates?
Often slightly higher, and some lenders charge a bridging fee or a higher rate on the bridging portion only. The bigger cost is usually the capitalised interest on the full peak debt, which is the same rate applied to a much larger balance. Compare the total cost of the bridge, not just the headline rate.
What happens if my home does not sell within the bridging period?
The lender will contact you well before the deadline. Options typically include extending the period, converting the loan to principal and interest on the full balance if you can service it, reducing the price to sell, or refinancing with another lender. In the worst case the lender can require the sale. Planning the fallback before you start avoids a forced outcome.
Can I bridge to a house-and-land package or a construction?
Yes, and many lenders allow up to twelve months because construction takes longer. Peak debt includes the land, the progress payments and the interest across the build. The end debt calculation is the same. Talk to us before signing the build contract so the timing lines up.
Talk to GNT Finance
Gorakh Timilsina will calculate your peak debt, capitalised interest and end debt across several lenders before you make an offer, so you know exactly how much time you have and what it costs. There is no cost to you for our home-loan service in most cases. Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.