Bridging Loans Explained

10.06.25 | Marc Barlow | Resources

Bridging Loans Explained


If you’re buying as new property before selling your old one, or you need money to fund a new build, bridging finance might be needed.

Here Mortgage Broker Melbourne explains what bridging loans are, and the pros and cons of taking one out.

We also let you know how we can help you decide if bridging finance is for you, and how we can help you take out the best bridging loan for your situation.

 

Bridging finance 101

As the name suggests, a bridging loan helps you ‘bridge the gap’ between needing money to complete a property transaction and actually having the cash available.

Banks and other lenders offer bridging loans to borrowers who can demonstrate that they have (or will soon have) funds available, but need money in the short term to tide them over. Loans typically cover property purchases, as well as stamp duty and other charges associated with purchasing a home, apartment or any other type of residential property.

These loans offer flexibility, especially when a purchase and sale date doesn’t line up perfectly.

While bridging finance is readily available to Australian borrowers, the interest rates can be steep. It’s important to be as sure as possible up-front whether you really need this finance, how much you need, and how long it’ll take to pay the loan back.

 

Who needs a bridging loan?

  • Buying and selling a property: If a buyer finds their ideal new property before selling or settling their existing home, a bridging loan can save the day, making the new purchase possible.
  • Renovating: Some owners take out bridging loans to fund renovations that aim to increase the value of their property. While renovation loans are also available, if the owners are planning to sell their newly-renovated place, a bridging loan might be best for them.
  • Building a new property: As with purchasing an existing property, bridging finance can fund the construction of a new property if the owner is planning to sell their existing place and move into the new property. This is especially popular for people building a place that is worth less than their old property (‘downsizing’).

 

Bridging loans: Pros

  • Flexibility: Borrowers can buy a new property without having to sell first. Most bridging loans give the borrower 12 months to sell their property and reduce the debt.
  • Speed: Bridging loans are usually approved faster than traditional home loans.
  • Interest-only repayments: Lenders might offer interest-only repayments during the bridging loan term.
  • Avoid renting: These loans can prevent the need to rent between selling and buying, also avoiding the need to move twice or put your possessions in storage. [Read more about this in our article Should I buy or sell first?]

 

Bridging loans: Cons

  • High interest rates: These loans typically cost more in rates and fees since lenders see them as carrying higher risk.
  • Double debt risk: Most bridging loans must be repaid within 6 to 12 months, which may not suit sellers who aren’t ready to sell or can’t find a buyer in time. Borrowers risk being stranded having to service two home loans at the same time.
  • Sale price risk: Bridging loans are based on the estimated selling price of the existing home. If the property sells for less, the shortfall can lead to serious financial headaches.

 

Avoiding the need for bridging finance

At Mortgage Broker Melbourne, we’ll always help our clients explore alternatives to bridging finance where possible.

Some ways we’ve helped past clients include:

  • Long purchase settlements: If you buy a property with a 120-day settlement, you might be able to sell with a 30- or 60-day settlement. You might be able to reduce or eliminate the gap, and therefore the need to obtain a bridging loan.
  • Deposit bonds: These guarantee payment of a deposit at settlement without immediate cash outlay. They’re cheaper than the actual deposit, but end up being an additional expense. Proceed with caution!
  • Redraw facilities or offset accounts: Those with existing mortgages should use any offset amounts or redraw funds they have available before looking at bridging finance.
  • Renting or living with friends or family: Avoid overlapping loans entirely. Put your stuff in storage and bunk with a friend!

 

We can help

If you’re facing a situation that might require bridging finance, talk to us at Mortgage Broker Melbourne as soon as possible. Our service is free to our clients, and we can help you understand the implications of a bridging loan.

We’ll talk through your assets, property aims and current financial position and help you find a bridging loan that suits your individual circumstances.

While you never pay us, you’ll probably have to pay regular fees and charges to any lender you end up using. Nobody can escape that!

Don’t delay.

Contact Mortgage Broker Melbourne today.