Bridging Loan

Sometimes, you find your dream home and you want to secure it before someone else swoops in – but you don’t have the funds to purchase it because the money hasn't settled on your old home. In an perfect world, we’d all would want the dates to match when we sell our old home and purchase a new one. But this can be tricky.

Essentially, a bridging loan is a little bit like a line of credit that you take out to cover the ‘bridge’ between buying the new property and receiving settlement funds of the old property.

What is a bridging loan?

A bridging loan is essentially a short-term financing solution designed to bridge brief gaps in funding.

A bridging loan is often an interest-only home loan with a limited loan term, usually a maximum term of either six or 12 months. The expectation you will sell your existing home in this time. Bridging loans usually can be organized quickly, making them ideal for buyers who need to move quickly to secure the purchase of a new property.

How does a bridging loan work?

When you take out a bridging loan, the size of the loan depends on how much debt remains on your old property, as well as the purchase price of the new property. These two values combined represent what’s known as your ‘peak debt’.

For example, if you still owe $200,000 on your older home loan and your new home is $700,000, your peak debt would be $ 900,000. Lenders typically allow home buyers to borrow up to 80% of this peak debt. Lenders also take into account the likely sale price of your old property and other costs of selling when assessing your borrowing power.