In short: A bridging loan is short-term finance, usually six to twelve months, that lets you buy your next home before your current one sells. The lender temporarily carries both properties as "peak debt", interest is normally capitalised so you make no extra repayments during the bridge, and once the old home settles the balance becomes an ordinary home loan. GNT Finance arranges bridging loans across Melbourne and Victoria.
Selling first is safer on paper. In practice it means renting for months, moving twice, and hoping the right house comes up while you wait. Many families in Greenvale, Sunbury and Mill Park would rather secure the next home first. Bridging finance makes that possible, but it is a specialised product with real risks, and only some lenders offer it well. Here is how it works, what it costs, and how we structure it.
Who bridging finance is for
- Owners upgrading from an established home with solid equity, typically 40% or more, who have found their next property.
- Downsizers moving to a townhouse or retirement village unit who need the new place settled before the family home goes to market.
- Buyers who have won an auction with a settlement date that lands before their sale can complete.
- People building a new home in Mickleham or Kalkallo who want to stay in their current house until handover; see construction loans.
It is not the right tool if you have little equity, if your income cannot cover the end debt, or if the property you are selling is in a slow market where a sale could take more than a year.
Peak debt, end debt and the two flavours of bridging
Lenders look at two numbers.
Peak debt is everything owed during the bridge: your existing mortgage, the full price of the new home, and purchase costs, less any cash deposit you contribute. Most lenders cap peak debt at 80% of the combined value of both properties, with the capitalised interest counted inside that limit.
End debt is what remains after the sale proceeds are applied. This becomes your ongoing home loan and must be serviceable on your income in the normal way, at the assessed rate plus 3 percentage points.
| Feature | Closed bridging | Open bridging |
|---|---|---|
| Sale contract on existing home | Already signed, settlement date known | Not yet sold |
| Typical term | Up to the sale settlement date | 6–12 months |
| Lender risk and pricing | Lower; often standard variable rate | Higher; some lenders load the rate or charge extra fees |
| Interest during the bridge | Usually capitalised | Usually capitalised; some require interest-only repayments |
| Availability | Most banks | Fewer lenders, stricter equity rules |
How we arrange it
- Equity and valuation check. We estimate what your current home is worth and what the bank will accept as a conservative sale figure. Lenders often shade your expected sale price by 5–15% for open bridging. The equity calculator gives a starting point.
- Peak and end debt modelling. We show you the maximum you can pay for the next home, the interest that will accrue during the bridge, and the ongoing repayment on the end debt.
- Lender selection. Some lenders only assess the end debt, which suits buyers whose income could not carry both loans. Others require you to service peak debt. Choosing the right policy can be the difference between approval and decline.
- Application and approval. One application covers both properties. The lender takes a mortgage over each.
- Purchase settlement. The new home settles; you move in when you are ready.
- Sale and conversion. When the old home settles, the proceeds reduce the loan. The remaining balance rolls into the standard home loan we chose at the outset, with any offset and repayment settings already in place.
Eligibility and documents
Lenders want to see:
- Combined LVR at peak debt of 80% or less, including capitalised interest.
- Enough income to service the end debt (all lenders) or the peak debt (some lenders).
- The existing property to be marketable, with a valuation the lender accepts. Rural acreage and unusual titles are harder.
- A realistic plan for the sale: an agent appointed, or a listing date agreed.
- Standard documents: ID, payslips, current loan statements, council rates notice for the existing home, the contract for the new purchase, and a market appraisal or listing agreement from the selling agent. Our documents checklist covers the rest.
Worked example: Greenvale to Mickleham
Hannah and Roshan own a house in Greenvale valued at $900,000 with $350,000 owing. They buy a new five-bedroom home in Mickleham for $800,000, settling in 60 days. They have not sold yet, so this is an open bridge of up to nine months.
| Item | Amount |
|---|---|
| Existing mortgage | $350,000 |
| New purchase price | $800,000 |
| Land transfer duty and purchase costs | about $45,000 |
| Peak debt | $1,195,000 |
| Combined property value | $1,700,000 |
| Peak debt LVR | 70% (within the 80% limit) |
For illustration, at 6.00% p.a., interest on $1,195,000 is about $5,975 a month. They choose to capitalise it. If the Greenvale house sells and settles after six months, roughly $36,000 of interest has been added to the loan.
| After sale | Amount |
|---|---|
| Peak debt plus capitalised interest | about $1,231,000 |
| Sale price | $900,000 |
| Less agent commission, marketing and legal fees | about $25,000 |
| Net proceeds applied | $875,000 |
| End debt | about $356,000 |
The end debt of $356,000 over 30 years at 6.00% p.a. costs about $2,134 a month, which is what the lender assessed them against. Land transfer duty on $800,000 in Victoria is $2,870 plus 6% of the amount over $130,000, which is $43,070; use the stamp duty calculator for other prices and the mortgage repayment calculator for the end debt.
What bridging costs
- Interest during the bridge. The largest cost, and it compounds if capitalised. Six months on $1.2 million at 6.00% is close to $36,000.
- Rate loading. Some lenders charge 0.5–1.0 percentage points above the standard rate on open bridging; others price it at the ordinary variable rate. We compare both.
- Discharge and settlement fees on the old loan, typically $300–$500.
- Break costs if your existing loan is fixed. Check breaking a fixed rate loan before committing.
- Our service: no cost to you for our home-loan service in most cases.
Risks and how to manage them
- The sale takes longer than the bridging term. Lenders can require a price reduction or, at worst, force a sale. We build in a buffer by assuming a conservative sale price and the maximum term.
- The house sells for less than expected. Every $10,000 shortfall adds $10,000 to end debt. Get two agent appraisals and price to sell.
- Buying at auction without approval. Bridging approvals take longer than standard loans. Have the approval in hand before auction day; there is no cooling-off period. See buying at auction in Victoria.
Alternatives to a bridging loan
A long settlement on the purchase, say 120 days, may give you time to sell and settle both on the same day. A deposit bond can cover the 10% deposit on the new home when your cash is tied up in the old one; see deposit bonds. A subject to sale condition in your offer is rarely accepted in a competitive market but costs nothing to ask. And if you are staying put and only need funds, an equity release refinance is simpler and cheaper.
Why use a mortgage broker for bridging finance
Bridging policy varies more between lenders than almost any other product: maximum terms, whether peak debt must be serviced, how much the sale price is shaded, and whether the rate is loaded. Your own bank may not offer it at all. GNT Finance compares the lenders that do, models your worst-case end debt before you bid, and runs both settlements so the timing works. Gorakh Timilsina assessed these structures as a senior credit officer, which helps get them approved cleanly. Read about the settlement process in Victoria to understand what happens on the day.
Frequently asked questions
How long can a bridging loan run?
Most lenders allow six months for an established home and up to twelve months when you are building. Closed bridging, where the sale contract is already signed, runs to the sale settlement date. If the sale is not complete by the end of the term, the lender will review the loan and may require you to reduce the price, start repayments on the full debt, or refinance.
Do I make repayments during the bridging period?
Usually not. Interest is added to the loan each month and cleared from the sale proceeds. Some lenders require you to keep paying your existing mortgage and only capitalise interest on the new portion. Where your budget allows, paying the interest as you go reduces your end debt and the total cost of the bridge.
How much equity do I need for a bridging loan?
As a rule, your peak debt, including capitalised interest and purchase costs, must stay at or under 80% of the combined value of both properties. That means a household with a $900,000 home and $350,000 owing can generally bridge to a purchase of around $800,000 to $850,000. Below that equity level, bridging becomes difficult and a sale-first strategy is usually better.
Can I get a bridging loan if I am retired or have low income?
Some lenders assess only the end debt, so if the sale of your current home will clear most of the borrowing, income requirements can be modest. Downsizers often qualify this way. Where end debt is nil or very small, a few lenders also offer short-term products designed for retirees, priced higher but with no ongoing servicing test.
Is a bridging loan more expensive than a normal home loan?
Sometimes. Several lenders price bridging at their standard variable rate, while others add a margin of up to 1 percentage point for open bridging. The bigger cost is the interest on peak debt itself, which is high because you are carrying two properties. Keeping the bridge short is the most effective way to keep the total cost down.
Talk to GNT Finance
If you have found your next home in Melbourne's north or anywhere in Victoria and your current one has not sold, we can model your peak and end debt within a day and tell you whether bridging stacks up. 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.