I'm Jason Birks, a Brisbane mortgage broker. I spent over ten years lending at Westpac and NAB before starting Birks Financial Group, and I compare more than 60 lenders. Bridging finance is one of the most useful tools for upgraders, and one of the least understood. Here's how it works.
How a bridging loan works
For a few months you own both properties. The lender lends against both, then the sale proceeds pay down the loan once your current home sells.
- Peak debt. Your current loan plus the price of the new home and the costs of buying it. This is the most you'll owe, during the bridging period.
- End debt. What's left once your current home sells and the proceeds, less selling costs, pay down the loan. This becomes your ongoing home loan.
- The bridging period. The time you have to sell. It's commonly up to six months for an established home and up to twelve months if you're building, depending on the lender.
Run your own numbers in my buying before you sell worksheet.
Interest during the bridging period
With many bridging loans you don't make full repayments on the bridging portion while you sell. The interest is added to the loan instead, and it's paid off from the sale proceeds. That keeps your cash flow manageable, but the interest still adds up, so a realistic sale price and timeframe matter.
What lenders look at
- Whether you can afford the end debt on your income
- A realistic value for the home you're selling, usually from a valuation
- Enough equity to cover the peak debt within the lender's limits
- Your plan and timeframe for selling
The alternatives
- Buy subject to sale. Your offer depends on selling your current home. Cheaper, but less attractive to sellers.
- A longer settlement. Negotiating extra time on the purchase can let you sell first without bridging.
- Sell first, then rent. No overlap and no bridging interest, but you move twice.
- Use equity for the deposit only. Sometimes a deposit funded from equity, plus a quick sale, is enough.
I'll show you what each option would mean for your numbers before you make an offer.
Questions people ask
Do I have to make repayments on a bridging loan?
You usually keep paying your existing loan, while interest on the bridging portion is added to the loan until the sale. It depends on the lender and how the loan is set up.
What happens if my home doesn't sell in time?
The lender may agree to an extension, or ask you to adjust the price or start full repayments. A realistic price and timeframe from the start are the best protection.
Can I get bridging finance to build?
Yes. Lenders often allow a longer bridging period, commonly up to twelve months, when you're building your next home.
Is bridging finance expensive?
The rate is often similar to a standard variable rate, but you pay interest on the larger peak debt for a while. The shorter the bridging period, the lower the cost.
