A bridging loan is short-term finance that lets you buy your next home before you have sold your current property. You effectively hold two mortgages at once, using the equity in your existing home to fund the deposit and settlement costs on the new one. Once your old property sells, you repay the bridging loan and convert to a standard home loan on the new property. Bridging loans typically run for 6 to 12 months and carry higher interest rates than conventional mortgages because of the added risk to the lender.

How Bridging Loans Work

When you take out a bridging loan, the lender uses both your existing home and your new purchase as security. The loan covers the gap between buying and selling, giving you access to the equity you have built up in your current property without waiting for settlement. According to ASIC MoneySmart, you must demonstrate you can service both loans simultaneously until the sale completes (MoneySmart, 2026).

The lender assesses your application based on the combined loan-to-value ratio (LVR) across both properties, your income, and your ability to meet the repayments on both loans. Most lenders require a clear exit strategy (proof your existing home is listed for sale at a realistic price) and will often cap bridging finance at 80 per cent LVR across the two properties to reduce their risk.

During the bridging period, you typically pay interest only on the bridging portion. Some lenders capitalise the interest (add it to the loan balance rather than requiring monthly payments), which reduces the immediate cash-flow pressure but increases the total amount you owe when your old home sells.

Costs and Risks

Bridging loans are expensive. Interest rates are commonly 1 to 2 percentage points higher than standard variable rates, and you pay interest on both the bridging loan and your new home loan at the same time. Application fees, valuation fees on both properties, legal costs, and early exit fees all add to the total cost. As foundational texts such as Principles of Finance explain, short-term financing instruments carry premium rates because of the compressed time frame and the lender’s exposure to market volatility.

The biggest risk is that your existing property does not sell within the bridging period. If your home remains unsold after 6 or 12 months, you may face penalty interest rates, extension fees, or be forced to sell at a lower price to meet the loan deadline. You are also exposed to interest-rate movements: if the Reserve Bank of Australia raises the cash rate during your bridging period, your repayments on both loans increase (RBA, 2026).

Serviceability is another hurdle. The lender assesses whether you can afford both loans at the same time, even if you only expect to carry the bridging loan for a few months. If your income or employment situation is not rock-solid, you may not qualify.

Read also: Bridging Loans in Australia: Buying Your Next Home Before Selling

When Bridging Loans Make Sense

Bridging finance suits buyers in a hot market where waiting for your sale to settle means missing out on the right property. It is most appropriate when you have significant equity in your current home (typically at least 20 per cent), a strong and stable income, and confidence your existing property will sell quickly at or above the valuation price.

However, bridging loans are not the only option. Alternatives include a sale-contingent contract (where your purchase is conditional on selling your existing home), selling first and renting short-term while you search for your next home, or using a deposit guarantee or family guarantee to cover the deposit gap without bridging finance (Finder, 2026). Each option has trade-offs between flexibility, cost, and certainty.

What to Do Next

If you are considering a bridging loan, speak to a licensed mortgage broker who can compare products from multiple lenders, explain the total cost over the bridging period, and assess whether you meet the serviceability criteria. Ask for a written breakdown of all fees, the interest rate, the maximum bridging term, and what happens if your property does not sell on time. Always have a backup plan in case the sale takes longer than expected.

General advice warning: This information is general in nature only and does not consider your objectives, financial situation, or needs. You should consider obtaining personal advice from a licensed mortgage broker or financial professional before acting on it. It is not personalised financial, lending, or legal advice. Bridging-loan terms, interest rates, fees, and serviceability criteria vary by lender, product, and your individual circumstances. Verify current terms with a licensed lender or mortgage broker for your personal situation.