A bridging loan lets you buy your next home before your current one sells. For a short period — the bridge — you effectively hold both properties and both debts at once. The lender combines them into a single peak debt: your existing mortgage balance, the new purchase price, and the purchase costs on top.
During the bridge you usually make no repayments. Instead, interest is charged at the bridging rate and capitalised — added to the balance each month, compounding until your sale settles. When it does, the net proceeds (sale price less agent commission and other selling costs) pay down the peak debt plus that capitalised interest. Whatever remains is your end debt, which converts to an ordinary home loan with normal monthly repayments.
Typical terms: 6 to 12 months
Most Australian lenders allow up to 6 months to sell an existing home, extended to around 12 months when you are building. Because interest compounds on the full peak debt, every extra month is expensive: on a $1.5m peak debt at 7.5%, each month of bridging adds roughly $9,000–$10,000 to the balance. Try shortening or lengthening the bridging period above to see the effect.
The two big risks
First, the sale takes longer than planned — interest keeps capitalising, and if you blow past the bridging term the lender can move you to a penalty rate or force the sale. Second, the property fetches less than expected — smaller net proceeds mean a larger end debt and higher repayments for decades. If the end debt climbs above 80% of the new property's value, Lenders Mortgage Insurance and serviceability problems follow. Run this calculator with a pessimistic sale price and a longer bridge before you commit.
Closed vs open bridging
Closedbridging means contracts on your sale have already exchanged with a known settlement date — the lender's risk is small and terms are sharper. Openbridging means your home is still on the market: expect a stricter assessment, a higher rate, and the lender will want a clear exit strategy if the property doesn't sell within the term. ASIC's Moneysmart suggests weighing bridging finance against the simpler alternatives — selling first and renting, or a longer settlement on the purchase.