Bridging loans let buyers purchase a new property before selling their existing one. They’re common in Victoria — about 8% of upgrading homeowners use them — but they carry interest rates 2–4% above standard mortgages, time pressure to sell, and risks if property values move against you. The wrong bridging structure can cost $50,000–$150,000 if the existing property takes longer to sell or sells for less than expected.
This guide covers the two bridging structures, the cost mechanics, the typical risks, and the alternatives that may be cheaper.
The two structures — closed vs open bridging
| Aspect | Closed bridging | Open bridging |
|---|---|---|
| Existing property | Already sold (under contract) | Not yet sold |
| Term | 6 months typical | 12 months typical |
| Interest rate | Standard variable + 1.5–2.5% | Standard variable + 2.5–4% |
| Risk to borrower | Lower | Higher |
| Lender appetite | Most major banks | Limited; specialist lenders |
How closed bridging works
You’ve sold your existing home (under contract, perhaps with deferred settlement) and are buying a new one. The bridging loan covers the gap — usually 4–12 weeks — between buying the new home and settling the sale of the existing.
Mechanics:
- Bank lends you the full purchase price of the new property
- You purchase and settle the new property
- You sell and settle your existing property
- Sale proceeds repay the bridge
- Remaining mortgage stays as standard home loan
How open bridging works
You haven’t sold your existing home yet but want to buy a new one. The lender funds the purchase with a bridging loan, and you sell the existing home subsequently. Higher risk because the sale price isn’t yet known.
Lenders typically require:
- Substantial equity in both properties (often 50%+)
- Servicing ability for the bridging loan even if existing property doesn’t sell quickly
- Marketing campaign already underway on the existing property
- Realistic price expectations supported by valuation
Cost example — bridging loan over 6 months
Existing home valued at $850,000, mortgage $250,000. Purchasing new home for $1.1m. Need to bridge $850,000 (new home minus deposit and existing equity).
Bridging loan parameters:
- Loan amount: $850,000
- Bridging interest rate: 8.5% (vs standard 6.0%)
- Term: 6 months
Cost calculation:
- Interest only at 8.5% × $850,000 × 6/12 = $36,125
- If standard rate at 6.0%: $25,500 — bridging premium = $10,625
- Bridging establishment fee: $1,500–$3,500
- Discharge fees (when bridge ends): $300–$600
- Total bridging cost: $48,000–$50,000
Risks of bridging — what can go wrong
- Existing property doesn’t sell. Open bridging only. If the property sits on market past the bridging term, you face refinancing or extension costs.
- Existing property sells for less than expected. Insufficient proceeds to discharge bridge. Borrower must cover shortfall from other resources.
- Settlement delays. If the existing-property sale settles late, additional bridging interest accrues.
- Market correction during bridging period. If property values fall during bridging, both properties may be worth less — potentially triggering covenant breaches.
- Interest rate changes. Variable bridging rates can rise during the period.
Alternatives to bridging
1. Long settlement on the new property
Negotiate a 90–120 day settlement. Sell existing property in parallel. Settlement timing matches roughly. No bridging needed. Best for buyer’s market.
2. Subject-to-sale clause
Make your new offer conditional on selling your existing property. The vendor of the new property may not accept this in a seller’s market.
3. Deposit bond
Pay 10% deposit using a deposit bond rather than cash. Releases cash for other uses. Cost: 1–1.5% of deposit value.
4. Family loan
Borrow from family for the bridging period. Cheaper than bank bridging but creates family obligations. Document properly.
5. Caveat loan / private lender
Specialist private lenders offer short-term loans secured by caveat. Faster approval than bank bridging but higher interest rates (often 10–15%) and fees.
When to use bridging
Closed bridging makes sense when:
- Existing property is sold with deferred settlement
- Settlement gap is 4–12 weeks
- You can comfortably service both loans during the gap
- Bridging cost is under $15,000 (acceptable transaction cost)
Open bridging makes sense only when:
- You have substantial equity in both properties
- You can service both loans for 12+ months if needed
- Existing property has clear demand and realistic pricing
- Alternative options (long settlement, subject-to-sale) aren’t viable
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