Bridging Loans Explained: How to Buy Before You Sell

Bridging Loans Explained: How to Buy Before You Sell

Buying your next home is exciting, but what if you find the perfect place before you’ve sold your current one? It’s a situation that many Australians find themselves in, especially in a fast-moving property market. You want to secure your dream home before someone else does, but your equity is still tied up in the home you’re living in.

So, what do you do?

That’s where a bridging loan can come to the rescue. Bridging loans are a short-term financing option that “bridges” the gap between buying a new property and selling your existing one. They can give you the flexibility to move on your own terms without feeling pressured to sell in a hurry or miss out on a great buying opportunity.

But, like any financial tool, they come with their own rules, risks, and rewards. In this blog, we’ll unpack exactly how bridging loans work, who they’re best suited for, and what you should consider before taking one on.

What Is a Bridging Loan?

A bridging loan is a temporary home loan that allows you to buy a new property before selling your current one. Essentially, it helps you cover the cost of the new property by using the equity in your existing home. Once your current property sells, the proceeds are used to pay off (or significantly reduce) the bridging loan balance.

Think of it as a financial “bridge” connecting your old home to your new one, letting you move forward without waiting for the sale to finalise. These loans are typically short-term, often lasting between six to twelve months for owner-occupiers, though some lenders may allow up to twenty-four months for investors.

How Does a Bridging Loan Work?

Let’s break it down step by step.

You find a new property before selling your existing one. Rather than risk losing it, you apply for a bridging loan. The lender then assesses both properties, looking at the value of your current home (and how much you still owe on it), the value of the new property you want to buy, and your overall financial position and ability to service the combined loan.

The lender temporarily treats both properties, your existing and new home, as part of a single, combined loan amount known as your peak debt.

For example:

• Current home value: $800,000
• Remaining mortgage: $300,000
• New home price: $1,000,000

Your peak debt becomes $1.3 million ($300,000 + $1,000,000).

Once you sell your old home, the proceeds (say $800,000) are used to pay down the loan, leaving you with a smaller, long-term mortgage of $500,000 (depending on sale price, fees, and interest accrued during the bridging period).

During the bridging period, most lenders only require you to pay interest on the total (combined) amount. Some even allow interest to be capitalised, meaning it’s added to your loan balance rather than paid monthly, freeing up your cash flow during the transition.

When your current property sells, the proceeds are used to pay off the bridging portion. You’re then left with a standard home loan on your new property, which you continue repaying as usual.

The Two Main Types of Bridging Loans

There are two primary types of bridging loans available in Australia. Which one you choose depends on whether you’ve already sold your existing home or not.

1. Closed Bridging Loan

A closed bridging loan is used when you’ve already secured a contract of sale on your existing property — you just haven’t received the settlement funds yet. Since there’s a definite end date, the lender can precisely determine how long you’ll need the bridging finance for (usually a few weeks or months).

• Best for: Homeowners who’ve sold but are waiting for the settlement to finalise.
• Benefit: Predictable time frame and usually lower risk for the lender.
• Drawback: Limited flexibility — works only if your sale is already locked in.

2. Open Bridging Loan

An open bridging loan applies when you haven’t yet sold your current property. You’re buying a new home first and will put your old property on the market later — giving you more flexibility but also more financial risk.

• Best for: Homeowners confident in selling soon but don’t have a buyer yet.
• Benefit: You can act quickly when a new home opportunity arises.
• Drawback: More risk due to uncertain sale timeline; higher interest or stricter lending terms may apply.

The Key Advantages of a Bridging Loan

A bridging loan can be a real game-changer in the right circumstances. Here’s why.

You can buy without waiting. This is the biggest benefit, it gives you the freedom to purchase your next home before selling your current one. You don’t have to compromise on timing or miss out on a property you love.

You can avoid renting between moves. Without bridging finance, many people are forced to sell first and then rent temporarily while they search for a new home. That means double moves, storage costs, and a lot of stress. Bridging loans eliminate that headache.

You get more time to sell on your terms. You can take your time to present your current home properly, wait for the right buyer, and achieve a better sale price. There’s no need for a rushed, below-market sale just to secure your new property.

You pay interest-only during the bridging period. Since most bridging loans are interest-only during the transition period, your repayments stay manageable even while holding two properties.

And you may benefit from capital growth potential. If property prices continue to rise while you hold both homes, you could gain additional capital growth on both properties.

The Risks and Drawbacks to Consider

As with any loan, bridging finance isn’t without its risks. Here’s what to keep in mind before applying.

You’ll temporarily carry double the debt. During the bridging period, your total loan amount (peak debt) will be higher than usual. If your existing property takes longer to sell, interest costs can add up quickly.

Market risk is another factor. If the property market cools or your home sells for less than expected, you could end up owing more than planned. It’s vital to be realistic about your property’s likely sale price.

Some lenders also charge higher interest rates and fees to offset the risk. There may also be valuation, setup, and discharge fees involved.

Time limits apply. Most lenders give you six months (for owner-occupiers) or twelve months (for investors) to sell your existing home. If the sale takes longer, you may face penalties or need to refinance.

Finally, not all lenders offer bridging loans, and eligibility criteria can vary widely. Working with a knowledgeable mortgage broker such as RateSeeker ensures you find a lender that aligns with your timeline, equity, and risk appetite.

Example: How a Bridging Loan Works in Real Life

Let’s imagine Sarah and James. They own a three-bedroom home in Sydney worth $900,000, with $300,000 left on their mortgage. They find their dream family home listed for $1.2 million — but don’t want to risk losing it while waiting to sell.

They apply for a bridging loan. Here’s what it looks like:

• Current home value: $900,000
• Current mortgage: $300,000
• New property: $1,200,000
• Peak debt: $1.5 million ($300,000 + $1,200,000)

The lender approves a six-month bridging period, allowing interest to be capitalised. Sarah and James sell their current home four months later for $880,000 after selling costs. After paying off the $300,000 existing mortgage, $580,000 goes towards the new loan.

Their new long-term mortgage becomes $620,000 ($1.2 million purchase price minus $580,000 proceeds), plus accrued interest from the bridging period. This way, they secured their new home smoothly, without renting or missing out.

Eligibility Criteria for a Bridging Loan

Each lender has its own assessment process, but generally, you’ll need to show sufficient equity in your current property (usually 50 per cent or more), strong repayment capacity to handle the peak debt period, a clear plan to sell your current home within the allowed timeframe, and proof of income and expenses to confirm serviceability.

Tips for Managing a Bridging Loan Successfully

To get the most out of bridging finance and avoid stress here are a few expert tips.

Be realistic about your property’s value. Overestimating your sale price is a common pitfall. Ask for multiple valuations or appraisals from local agents to get a grounded view.

Factor in all costs. Remember stamp duty, legal fees, marketing costs for your sale, and interest during the bridging period. It’s best to build a buffer for unexpected expenses.

Sell within the bridging period. Even if you’re confident your home will sell quickly, have a contingency plan. Start marketing early and keep communication open with your agent.

Avoid overstretching. Bridging loans can make it tempting to buy above your means. Keep your future repayments manageable once your old property sells.

Seek expert advice. Every bridging situation is unique. A professional mortgage broker can model your peak debt, calculate potential interest, and help you choose the right lender and structure.

Alternatives to Bridging Loans

If a bridging loan doesn’t feel right for you, here are a few alternatives to consider.

An extended settlement period. If the seller of your new home agrees, you can negotiate a longer settlement (for example, 90–120 days), giving you more time to sell your current property before completing the purchase.

A deposit bond. This can help you secure a new property without needing to pay the full deposit upfront — useful if most of your funds are tied up in your existing home.

A home equity loan or line of credit. If you have significant equity, you might be able to tap into it via a line of credit to cover your new deposit, then pay it off once your old home sells.

Sell first and rent temporarily. While not ideal, selling first and renting for a few months can provide certainty and prevent financial overlap, though it comes with logistical headaches.

Is a Bridging Loan Right for You?

Whether a bridging loan makes sense depends on your personal situation, financial goals, and the state of the property market.

It may be a smart move if you’ve found a great property and don’t want to miss out, have strong equity and a realistic sale plan, and prefer to avoid the stress of selling and buying simultaneously.

But it may be risky if the property market is cooling, your home may take time to sell, or you’re already stretched on repayments.

Final Thoughts: The Bridge to Your Next Chapter

Bridging loans aren’t for everyone, but in the right hands, they can be a powerful tool to help you move forward with confidence. They allow you to buy your next home without rushing your sale, reduce the stress of moving twice, and give you breathing space to make smart, informed decisions.

That said, timing and planning are everything. A clear strategy — backed by professional advice — can make all the difference between a seamless transition and a financial strain.

At RateSeeker, our mortgage experts help Australians find tailored home loan solutions that fit their unique needs, including bridging finance options. We’ll help you calculate your peak debt, explore suitable lenders, and navigate every step so you can move into your new home with peace of mind.

Because the journey to your next property shouldn’t feel like a leap of faith, it should feel like a well-built bridge.