Understanding bridging loans
Last updated: 18 April 2025 | Estimated read time: 4 Minutes
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What 's a bridging loan? | Who can apply? | Interest rates and repayment | Benefits and drawbacks |
Finding the right home for you and your family after months of trawling real estate listings can be a hugely exciting time. Picture the scene. You’re itching to sign on the dotted line, book the removalists and start packing already – before someone else snaps it up. However, there’s just one problem. You haven’t sold your existing property yet.
This is a surprisingly common situation many Aussie homeowners find themselves in – and one possible solution is a bridging loan.
Understanding bridging loans, how they work and whether you’re eligible is key before talking to a lender. Our guide looks to help you understand if a bridging loan is the right option for you.
How does a bridging loan work?
A bridging loan is a short-term property loan that enables you to buy a new home and move in, before you’ve sold your existing property. It works by using equity in your current home as security for borrowing the deposit and cost of a new property.
This type of loan creates a ‘bridge’ between one property to another. A bridging loan could enable you to purchase a new property, while giving you peace of mind and breathing room in which to sell your current home.
Who can apply for a bridging loan?
A bridging loan is a short-term property loan that enables you to buy a new home and move in, before you’ve sold your existing property. It works by using equity in your current home as security for borrowing the deposit and cost of a new property.
This type of loan creates a ‘bridge’ between one property to another. A bridging loan could enable you to purchase a new property, while giving you peace of mind and breathing room in which to sell your current home.
(This could include establishing your credit history, financial stability, how much equity you have in your current home)
(Is it for a property purchase, renovation, investment property or other)
(Such as your existing home)
(Can you afford repayments on this and your current home loan?)
(There may be a requirement to sell your home and pay the bridging loan within an agreed term – say 6-18 months – and if banks aren’t convinced you will sell due to where you’re located, you may not get approval).
It’s likely you’ll be asked to supply evidence of savings and your financial situation, too.
Bridging loan interest rates and repayment options
How do you pay back a bridging loan? It can differ. Bridging loans may attract a higher interest rate than standard home loans, and if you’re required to make monthly repayments, these may be ‘interest only’ for the period of the loan. Other bridging loans might not require you to pay anything during the term of the loan, but must be paid off as a lump sum (often, plus interest) at the end of the loan term, using the proceeds from the sale of your current home.
Once your old home is sold and you’ve paid off the bridging loan, the balance may be converted into a standard ongoing home loan on your new property. Repayments may also revert to principal and interest, instead of interest only.
This type of loan creates a ‘bridge’ between one property to another. A bridging loan could enable you to purchase a new property, while giving you peace of mind and breathing room in which to sell your current home.
Possible benefits and drawbacks of bridging loans
Possible benefits…
- It’s a convenient way to buy a new home before selling your old one, and you’re given a decent chunk of time to sell and pay out the loan
- The bridging loan enables you to switch from your current home to the new one without having to pay rent or storage fees
- Repayments are typically interest only, so may be easier to manage
- You may be able to close the loan early and pay it out (saving on interest) if your home sells faster than you thought.
Potential downsides…
- Bridging loans are typically more expensive than standard home loans and may incur set-up fees and other lender charges to be aware of
- If you’re buying a new property before selling the old one, you’ll likely have to cover multiple repayments (on your current home loan and the bridging loan)
- If you don’t sell your home within the term of the loan, the bank may step in
- If your property sells for less than expected, you could end up with more debt than you bargained for.
Bridging loans versus standard home loans:
key differences
Bridging finance differs in many ways to a typical home loan. Firstly, it’s short-term financing (6-18 months) while a standard home loan is often repaid over 25-30 years, or even loger.
Repayments may also differ; while some bridging loans require monthly repayments similar to standard home loans, others may be paid off in a lump sum when the old property is sold.
The loan structure is usually interest only, or capitalised interest (which is added to the loan balance), whereas a standard home loan may offer principal plus interest or interest-only options. And the upfront or ongoing fees may also differ, too.
Does Pepper Money offer Bridging Loans
Many lenders currently offer this type of loan in Australia, Pepper Money is not currently one of them.
We do have other options for everyday Aussies looking for a cash boost, like a personal loan.
What others are asking about reverse mortgages
Assess your income, budget and capacity to make repayments on a bridging loan as well as your current home loan. You’ll also want to gather all the documents a lender might need to approve you – such as bank statements, evidence of assets, etc.
You can typically borrow up to 80 percent of the value of the new home you’re buying (known as the Loan to Value Ratio or LVR).
Depending on where you apply, rates will vary, but are typically between 7-9%.
Yes, repayments are often monthly. Although some loans are paid out at the end of the term as a lump sum.
You may receive the full loan amount upfront (so you can go and purchase a new property) or the loan may have ‘draw-down facilities’ where you access funds when you need them. This might be used in case of a renovation project, for example.
This depends on the lender, but it may be quicker than a standard loan due to the short-term nature of bridging finance.
Contributor | Barry Saoud, General Manager, Mortgages and Commercial Lending
Barry joined Pepper Money in July 2021 as General Manager, Mortgages and Commercial Lending. He is responsible for the strategic direction and operating performance across product, credit, and settlements for mortgages, commercial loans, personal loans, and direct sales. Read more.
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