What a bridging loan actually does

Selling one home and buying the next rarely happens on the same day. The property you want comes up before the buyer for the property you have, and the settlement dates almost never line up. A bridging loan — sometimes called a relocation loan — is the finance that holds the gap open so you can buy the new home before the old one sells, even while a mortgage still sits on it.

The mechanics are straightforward. The bridging loan is taken in addition to your existing home loan, so for a period you are carrying both properties. The outgoing property is usually held on interest-only terms while it is marketed. The bridge typically runs six to twelve months, and most lenders charge a higher rate if the property has not sold inside the agreed window. Where it sells slowly, some lenders will involve themselves in the sale of the outgoing property — which is rarely where you want to be, and is one of the reasons the structure and the exit deserve attention up front.

Peak debt, end debt, and how the loan is structured

Two terms do most of the work here. Peak debt is the total you owe across both properties during the bridge — broadly, what you need to borrow to buy the new home added to the outstanding balance on the existing one. During this period your monthly commitments are higher because they are calculated against that combined figure.

Once the existing property sells, the proceeds reduce peak debt and what remains is your end debt (or ongoing balance). At that point the loan is usually moved onto a standard product, often on better terms and a lower rate. Repayments drop — though if you have shown you can service the higher peak amount, continuing to pay above the minimum is generally worth doing.

Bridging loans split broadly into two forms. A closed bridging loan applies where a sale date is already agreed and the bridge is paid out in full on that date. An open bridging loan applies where no firm sale date is known yet; not every lender will write one, because an open-ended exit is read as higher risk. There are also construction bridging loans, where the new dwelling is being built rather than bought — historically harder to obtain because of construction risk, but several lenders now consider them, typically requiring construction to complete within six months of the first advance and the outgoing home to settle within six months of the final progress payment.

Qualifying, costs, and the trade-offs

Bridging policy varies considerably from one lender to the next, so the useful question is which lender's terms fit your circumstances rather than whether bridging is possible at all. As a general guide, lenders look for:

The costs are real and worth pricing before you commit. Interest is typically calculated daily and capitalised monthly, so the longer the bridge runs, the more it costs. Because two properties are involved, you may pay for two valuations (indicatively in the few-hundred-dollar range each, sometimes waived, particularly if the bridge sits with your existing lender), and an application or bridging fee that some lenders waive. On top of that are the selling costs on the outgoing home — marketing and agent fees, commonly a low single-digit percentage of its value.

Against that, the advantages are concrete: you can buy now rather than wait for a buyer, you avoid an interim period of renting or relying on family, and you are not forced to discount the outgoing property under a settlement deadline. The disadvantages are the mirror image — pressure builds as the bridging window closes, interest accrues if the sale drags, and bridging facilities generally lack redraw. Where bad credit is involved, bridging is harder to place, though minor defaults or small balances are usually acceptable.

Bridging is not the only way to manage the timing gap. A "subject to sale" clause on the new purchase, or negotiating a longer settlement, can sometimes achieve the same end without carrying two loans. And whichever path you take, the exit strategy is the part that matters most: a realistic valuation of the outgoing property, some repayments during the bridge to keep peak debt down, and a fallback — short-term tenants, for instance — if the sale takes longer than planned.

If a bridging loan is on the table, it is worth mapping the structure, the peak debt, and the exit before you commit to settlement dates — so the timing works in your favour rather than against it. Book a strategy session and we will work through which lender's terms fit your situation.

General information only — not personal financial product or credit advice. Lending is subject to each lender's policy, your full circumstances and responsible-lending assessment. AeFin is an Australian Credit Representative (CR 464548) of Finsure (ACL 384704).