Bridging Loans — Fact Sheet
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This fact sheet is reproduced for general information purposes only.
It is an industry-standard explanatory document and has not been authored by Model Mortgages.
It does not provide personal advice.
Bridging loans
A bridging loan is a short-term loan designed to help cover the financial gap between buying a new property and selling an existing one.
It provides temporary funding so you can secure your next home without needing to wait for your current property to sell.
One of the first considerations for lenders is whether there will be an “end debt”, as this is a key factor in assessing bridging loan applications.
How do bridging loans work?
Bridging loans are typically structured in one of two ways:
Closed bridging loan
Available when you have already exchanged contracts on your existing property and have a confirmed settlement date that occurs after settlement of the property being purchased.
Open bridging loan
Used when your existing property has not yet been sold. These loans are usually subject to a time limit, commonly up to 12 months.
During the bridging period, repayments are usually interest-only, with the balance repaid once the existing property is sold.
Benefits of a bridging loan
- Move on your terms – Purchase your next home without waiting for your current home to sell.
- Avoid temporary accommodation – Remain in your current home until the new one is ready.
- Interest-only repayments – More manageable repayments during the transition period, subject to lender terms.
- Greater negotiating power – Ability to secure your next home without conditional sale clauses.
Things to consider
- Higher interest costs – Bridging loans often attract higher interest rates than standard home loans. In some cases, this may be a standard variable rate without discounts, or a higher default rate if the property is not sold within the agreed period.
- Short-term commitment – Bridging loans must be repaid within a set timeframe, usually between 6 and 12 months.
- Market risks – If your property takes longer to sell than expected, the lender may intervene to assist with the sale, and default interest rates may apply.
- Lender criteria – Not all lenders offer bridging loans. Approval depends on your financial position, including whether there will be an end debt. Some lenders may not proceed where the bridging loan is expected to be cleared in full from sale proceeds.
Bridging loan scenarios
Example 1: Smooth transition between homes
Sarah and Tom have lived in their home for 10 years and have a remaining mortgage of $300,000. They purchase a new home for $1,000,000 before selling their existing property.
- Existing mortgage: $300,000
- New home loan: $1,000,000
- Total debt during bridging period: $1,300,000
During the 6-month bridging period, they make interest-only repayments on the total debt. They sell their existing home for $750,000 and use the proceeds to repay the bridging loan and remaining mortgage. This reduces their new home loan to $550,000, which is then repaid as a standard principal and interest loan.
Example 2: Challenges of a delayed sale
Michael and Lisa purchase a new home for $1,200,000 using a bridging loan, while waiting to sell their existing home. They have an outstanding mortgage of $400,000.
- Total bridging loan: $1,600,000
- Bridging period: 12 months (interest-only repayments)
At the end of the bridging period, their property has not sold. The lender applies a higher default interest rate, increasing repayment costs. They eventually reduce the asking price and sell for $900,000.
After repaying the bridging loan, they are left with $500,000 in net proceeds, resulting in a new home loan of $700,000—higher than originally planned.
Example 3: No end debt
David and Toni are downsizing from their family home, valued at $1,700,000 with a mortgage of $200,000. They purchase a regional property for $900,000.
- Total bridging loan: $1,100,000
- Bridging period: 6 months (interest-only repayments)
They successfully sell their family home for $1,700,000 and repay the full bridging loan, resulting in no end debt and surplus funds from the sale.
Disclaimer
The information provided in this fact sheet is not legal, taxation, or financial planning advice.
It has been prepared without considering your objectives, financial situation, or needs.
All loan products are subject to lender criteria and approval. Fees, terms, and conditions apply.
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