Bridging Finance
A short term loan that funds the purchase of a new property before the sale of an existing property has settled.
In detail
Bridging loans cover the gap between buying a new home and selling an existing one. The lender advances funds so the borrower can settle the new purchase without waiting for the old property to sell. During the bridging period the borrower typically has two loans running, though interest is often capitalised rather than repaid each month.
Lenders assess bridging on peak debt, which is the combined balance of both loans during the bridging period. Most bridging terms run six months for existing homes and up to twelve months for construction. Once the existing property sells, the proceeds pay down the loan to an end debt level that must service as a standard home loan.
Why it matters for brokers
Bridging is a niche product with strict policy and only some lenders offer it. Brokers who understand the structure can help upgrading clients move quickly without needing to sell first or settle on the same day.
Example in practice
A couple owns a home worth $900,000 with a $300,000 loan and wants to buy a $1.2 million upgrade. Their lender offers a bridging loan covering the $1.2 million purchase plus capitalised interest. Peak debt hits around $1.55 million. When the existing home sells for $900,000 net, end debt settles at $650,000.
Related terms
Loan to Value Ratio (LVR)
The loan amount expressed as a percentage of the property value, used by lenders to assess risk on a home loan.
Serviceability
A lender assessment of whether a borrower can meet loan repayments from their income after accounting for expenses, existing debts, and a buffer.
Stamp Duty
A state based tax payable on the transfer of property, calculated as a percentage of the purchase price.
Principal and Interest (P&I)
A loan repayment structure where each instalment reduces both the loan balance and the accrued interest.
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