Bridging Loan

Plain-English definition. A bridging loan is a short-term home loan that funds the purchase of a new property before your existing one has sold, "bridging" the gap until settlement of the sale.

How it works in Australia. Most major Australian lenders offer bridging finance for typically 6 to 12 months. Lenders calculate "peak debt" (existing loan + new purchase + costs) and "end debt" (peak debt minus expected sale proceeds). During the bridging period, interest is usually capitalised — added to the loan balance — because servicing two mortgages simultaneously is rarely affordable. Rates are often 0.5–1.0% above standard variable. ASIC's Moneysmart bridging loan guide outlines the consumer risks.

Concrete example. You own a home worth $900,000 with $300,000 left on the mortgage. You buy a $1.2m home before selling. Peak debt becomes $300,000 + $1,200,000 + $60,000 (stamp duty/costs) = $1,560,000. After your sale completes for $900,000 (less $25,000 fees = $875,000 net), end debt is $685,000. If the bridging period is 6 months at 6.8% with capitalisation, roughly $53,000 in interest is added.

Common confusion. Borrowers underestimate sale price risk. If your existing home sells for $820,000 instead of $900,000, end debt jumps and may exceed your serviceability — you can be forced into a fire sale. Bridging finance suits buyers with substantial equity buffers, not borrowers stretched to the limit.