Bridging loan

A bridging loan is short-term finance that covers the period between buying a new property and receiving the proceeds from selling an existing one. The loan is usually secured over one or both properties, and it is repaid from the sale proceeds, with any remaining debt rolled into an ongoing home or investment loan.

An example

A family signs a contract on a new home before their current home has sold. A lender funds the purchase on a short term, secured over both homes. When the old home sells, the proceeds repay the bridging portion and the remainder becomes a standard loan.

Why it matters

Bridging loans let people buy before they sell, but interest often accrues while the sale is pending, and a slower or cheaper sale than expected leaves more debt. Testing a longer sale period and a lower sale price shows how much risk you are carrying.

Points to check

Ask how interest is charged while the sale is pending, and whether it is paid monthly or added to the loan. Check the maximum term, what happens if your property has not sold by then, and whether the lender can require a price reduction. Get an agent's written appraisal and test a lower sale price. Confirm whether the loan is regulated consumer credit, and ask for every fee in writing before you sign.

Try it: Bridging finance calculator. Read about bridging finance

Related terms

• Exit strategy
• Capitalised interest
• Settlement
• Combined LVR